Will this momentum continue?

Nvidia (NASDAQ: NVDA) is set to report its FY25 Q2 results on August 28. The company expects another strong quarter thanks to strong demand for Nvidia’s high-end graphics processing chips, which are now the gold standard for running generative AI workloads. We expect Nvidia to report quarterly revenue of $28.55 billion, roughly in line with consensus estimates and 2.1 times last year’s figure. We expect earnings to be around $0.64 per share, slightly above consensus estimates and up from $0.27 in last year’s quarter. So what should investors expect as Nvidia reports its FY25 Q2 earnings? For more information, see our analysis of Nvidia’s earnings preview.

Nvidia’s data center business is likely to be the main driver of revenue in the quarter, driven by its Hopper GPU computing platform and InfiniBand end-to-end networking solutions, as customers across industries invest in training and interfacing generative AI and large-scale language models. Nvidia said its largest customers for AI chips are cloud players, but demand is also growing among consumer internet players, enterprise players and healthcare customers. In the first quarter of fiscal 2025, Nvidia’s data center segment revenue surged to $22.6 billion, up nearly five times year-over-year. Supply of Nvidia’s Hopper products is also improving, which will likely help sales in the second quarter. Keep an eye out for updates on the company’s next-generation Blackwell chips. The chips were expected to be launched around October this year, but a report from The Information said that a recently discovered design flaw could delay the launch of the chips.

Nvidia is also very profitable due to the rapid growth of AI. Its first-quarter net income was $14.881 billion, up seven times from the same period last year. Nvidia is benefiting from lower component costs and greater scale, which should continue to be strong in the second quarter. For the second quarter, Nvidia expects adjusted gross margins of about 75.5%, plus or minus 50 basis points. It should also benefit from a more favorable product mix skewed toward complex data center products and increased software-related sales.

NVDA shares have seen a very strong 710% rise from $13 in early January 2021 to around $105 today. In comparison, the S&P 500 has risen about 40% over the last three years. However, NVDA’s rise has not been consistent. The stock returned 125% in 2021, -50% in 2022, and 239% in 2023. In comparison, the S&P 500 returned 27% in 2021, -19% in 2022, and 24% in 2023, indicating that NVDA underperformed the S&P in 2022.

In fact, consistently outperforming the S&P 500 in good times and bad has been tough for individual stocks in recent years, even for the big names in the information technology sector like AAPL, MSFT, and ORCL, as well as large caps like GOOG, TSLA, and AMZN.

In contrast, the Trefis High Quality Portfolio of 30 stocks has outperformed the S&P 500 every year over the same period. Why? As a group, the stocks in the HQ Portfolio offered lower risk and better returns than the benchmark index. There was less rollercoaster volatility as evidenced by the HQ Portfolio’s performance metrics. Given the current uncertain macroeconomic environment of high oil prices and rising interest rates, could NVDA face a similar situation in 2022 and underperform the S&P over the next 12 months? Or is a significant upside in store?

While Nvidia’s current market price is $105 per share, the stock is currently trading at about 38x consensus FY’25 earnings and 28x FY’26 earnings. Given Nvidia’s rapid growth, this is not an unreasonable multiple. That said, there are risks. First, the big surge in GPU demand we are currently seeing may ease as the initial training phase of AI large language models slows down. After training the models, the phase of utilizing these models may shift to lower power requirements, or possibly on-device capabilities, slowing the growth in GPU demand. Competition is also increasing. Players such as AMD are investing heavily to catch up in this space, given the high stakes. NVDA shares are valued at $89 per share, about 15% below the current market price. For more information on the factors driving NVDA stock price estimates, check out our analysis of Nvidia Valuation: Is NVDA Stock Expensive or Cheap?

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