Nvidia Earnings Are Coming Next Month and the Stock Looks Poised to Dip Regardless of the Outcome

Earnings season has kicked off, but the world's most valuable company by market cap doesn't report until next month. Nvidia (NASDAQ: NVDA) operates on a different fiscal calendar, with its fiscal third quarter ending next week. It doesn't mean investors shouldn't start preparing now for the initial market reaction.

When the global leader in AI infrastructure solutions offers up fresh financials in mid-November, the numbers will be big. The stock's response -- at least, based on recent market reactions to Nvidia results -- might surprise you.

Image source: Getty Images.

Berate expectations

Analysts are holding out for another quarter of robust growth for Nvidia. They see revenue surging 91% to hit a record $109 billion. This is in line with the $108 billion that Nvidia itself offered up as guidance two months ago. The same Wall Street pros also see earnings rising roughly 90%, to $2.47 per share.

You would think a 90% increase on both ends of the income statement is a pretty high bar, but Nvidia is often toying with the market. It has consistently landed 3% to 6% above analyst profit targets over the past year. With its recent string of beat-and-raise performances, you would expect confetti launchers to go off whenever the wearer of the market cap crown steps up with new financial results. The last five quarters could shock you.

NVDA data: YCharts.

Chipping away at the market leader

There is a lot to unpack here. Let's start by noting that the stock initially moved lower following four of the last five earnings reports. The good news is that the stock had ultimately risen by the time Nvidia reported again three months later.

Another piece of comforting news is that the outlier here -- Nvidia shares rising after its fiscal second quarter this past summer -- was the one time that the stock was lower than it was after the previous report. The conclusion, given the limited sample size of five financial updates, is that Nvidia more than makes up for the initial post-earnings decline. The one time that didn't happen, the initial post-earnings reaction was positive.

A November to remember

This brings us to next month's critical update. Nvidia stock is currently near its level from its last report on Aug. 26. It's not trading materially higher, suggesting the stock may sell even on an upbeat report. It's also not trading substantially lower, as it did when it bucked the trend to rise last time out.

One comforting thought for the bulls is that the stock has undershot the improvement in Nvidia's fundamentals over the past year. Revenue growth has accelerated over the past several quarters, and net income growth has been explosive. The stock's 20% ascent over the past year is just a sliver of the growth it has delivered.

Nvidia shares are currently trading for less than 14 times next year's adjusted earnings target. It's a great price for a great company. The ceiling remains high. Naturally, the floor can also be substantially lower if revenue growth slows and margins contract, but that's not likely to be the case in next month's report. If a dip comes -- as it has four of the last five times -- there are still good reasons to remain optimistic.

Rick Munarriz has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.