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Nvidia is missing link in a strong season of AI earnings reports

Bloomberg
Bloomberg • 3 min read
Nvidia is missing link in a strong season of AI earnings reports
AI computing stocks remain attractive
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Results from the world’s biggest technology companies have brought mostly good news. There’s just one missing piece: Nvidia Corp.

The company, whose dominance in chips that do the heavy lifting for AI computing have made it the focal point in a market captivated by the burgeoning technology, isn’t due to report earnings until May 22.

That’s well after other releases that have shown profits rising at a healthy clip, demand for artificial intelligence tools boosting sales for cloud computing services and signs of continued heavy spending on AI gear.

“You have massive buyers of chips coming in saying we were already buying a ton, we’re buying even more. The question for Nvidia is: is it enough?,” Mike Bailey, director of research at Fulton Breakefield Broenniman LLC, said on Friday. 

Nvidia Shares Have Rebounded From a Swoon Last Month

See also: Morgan Stanley’s Wilson says a 10% stock market correction is 'highly likely'

Among Nvidia’s biggest customers, Meta Platforms Inc, Microsoft Corp, Amazon.com Inc and Alphabet Inc have all indicated that capital expenditures will continue at the current pace or increase this year.

Nvidia shares have rebounded since April 19, when AI hardware makers tumbled ahead of the first week of Big Tech earnings. The stock is up 17% since then but it’s still down about 7% from a March peak. With other AI hardware maker shares falling in the wake of strong earnings reports, it’s clear that expectations are high. 

Rival chipmaker Advanced Micro Devices Inc tumbled nearly 9% on May 1 despite raising its forecast for AI accelerator sales this year to US$4 billion from US$3.5 billion.

See also: Nvidia gets rare downgrade on valuation concerns after rally

Super Micro Computer Inc, the server maker whose shares have gained more than 170% this year, dropped 14% after its earnings report that included forecasts for revenue and profits that far exceeded the average of analyst estimates.

With earnings from about 80% of the S&P 500 already in, technology and communication services companies are beating profit estimates at a stellar clip. Roughly 90% of tech and communication services companies have topped earnings estimates, well ahead of the 79% average for the benchmark, according to data compiled by Bloomberg.

The trouble is that the results have had difficulty moving the needle for stocks after a rally that’s lifted the tech-heavy Nasdaq 100 Stock Index by 37% over the past 12 months. Both groups rank at the bottom of the main S&P 500 sectors for stock price moves the day after earnings. The average move for the tech sector is down 1.5% while communications shares have fallen 2.7%.

To UBS’s Solita Marcelli, AI computing stocks remain attractive with combined capital expenditures from Microsoft, Alphabet, Meta and Amazon expected to exceed US$200 billion this year, up US$20 billion from a previous estimate. 

“We are encouraged by many positives in tech fundamentals during the first-quarter reporting season, which in our view continue to support the investment case for generative artificial intelligence,” said Marcelli, chief investment officer Americas at UBS Financial Services.

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