Nvidia Prepares for Pivotal Q3 Earnings Report on November 19

Nvidia is set to conclude the earnings season for the Magnificent Seven with its third-quarter results scheduled for release after the market closes on November 19, 2023. As the tech sector continues to navigate the evolving landscape of artificial intelligence (AI), this update is anticipated to provide crucial insights into the sustainability of the recent AI boom.

Investor expectations are exceptionally high, with consensus forecasts already exceeding Nvidia’s own guidance. This leaves the company with minimal margin for error, especially as market sentiment surrounding AI investments has begun to soften. Analysts suggest that to achieve a positive market reaction, Nvidia must report revenues in the vicinity of $55 billion to $56 billion. Options pricing indicates a potential post-earnings swing of 6% to 8%, highlighting the prevailing uncertainty among investors.

Focus on Q4 Guidance and Market Dynamics

Wall Street is particularly attentive to Nvidia’s guidance for the fourth quarter, which is projected to fall between $61.3 billion and $61.6 billion. Any figure below $60 billion could raise alarms about normalizing capital expenditures among hyperscalers. Furthermore, management will need to address questions regarding the longevity of the AI spending cycle. Investors are looking for clarity on order visibility through 2026, demand for enterprise inference, and wins in the sovereign AI space, all crucial to alleviating fears of “circular” spending and inventory surpluses.

The rollout of the Blackwell (B200) chip is another critical element. Investors are hopeful for an $8 billion sequential increase in data-center revenue and gross margins remaining close to 74%. Any setbacks in production or pricing could jeopardize confidence in Nvidia’s strategic roadmap.

Geopolitical Challenges and Competitive Landscape

Nvidia continues to face headwinds from geopolitical factors. Its guidance has already accounted for the exclusion of China-bound H20 shipments due to U.S. export restrictions. Additionally, new regulations from Beijing mandating the use of domestic chips in state-funded data centres could further solidify revenue loss in this significant market.

Competition in the AI sector is intensifying, particularly with advancements from AMD’s Instinct accelerators and the accelerated development of in-house AI chips among hyperscalers. To maintain its market rally, Nvidia must deliver a robust “beat-and-raise” performance. Falling short, especially with a cautious outlook, could lead to a sharp decline in stock value, given the elevated expectations investors have set.

As Nvidia approaches this critical earnings report, the market will be keenly observing its results and guidance, which could have far-reaching implications for the company’s future and the broader AI landscape.