Stop us if you’ve heard this one before: A high bar has been set for Nvidia ‘s upcoming earnings report. But just because it’s been the case for the past three quarters does not make it less true Wednesday night, when the leading artificial intelligence chipmaker releases fiscal first-quarter numbers. Most on Wall Street are once again expecting Nvidia to deliver a beat-and-raise report. No one is expecting it to be at the magnitude of last May’s jaw-dropping release , but there remains a belief that fervent demand for its AI chips will continue to propel Nvidia’s sales and profits to higher and higher levels. Its stock has been doing that since the launch of ChatGPT in late 2022 kicked off the generative AI investment boom. So far in 2024, shares of Nvidia are up nearly 92% and closed Tuesday at a record high. Over the past month alone, the stock has added almost 25%. At the same time, we’re wary of declaring Wednesday night’s release as “some kind of make or break” event, as Jim Cramer said this week. As the dominant AI enabler, Nvidia remains an “own it, don’t trade it” stock. Here are the three biggest questions we have surrounding Nvidia’s earnings report and conference call Wednesday. 1. How is upcoming launch of Blackwell impacting near-term demand? This had been a question on investors’ minds even before a Financial Times story Tuesday discussed the topic in the context of Amazon Web Services orders. The report only heightened Wall Street’s focus on the transition to Nvidia’s next-generation Blackwell architecture, which Nvidia debuted at its much-hyped GTC conference in March . Its current generation is known as Hopper. Blackwell-based chips are expected to begin hitting the market later this year, management has said. Nvidia’s Hopper chips include the H100, which was announced in 2022 and faced severe supply shortages last year as the AI gold rush intensified. There’s also the newer GH200 Grace Hopper Superchip, which was unveiled in August 2023 with plans to begin shipping in the second quarter of calendar 2024. In an emailed statement to CNBC regarding the Financial Times story, an AWS spokesperson wrote: “To be clear, AWS did not ‘halt’ any orders from NVIDIA. In our close collaboration with NVIDIA, we jointly decided to move Project Ceiba from Hopper to Blackwell GPUs, which offer a leap forward in performance.” Project Ceiba is a collaboration between AWS and Nvidia to build the world’s largest cloud-based AI supercomputer. Still, on Wednesday evening’s conference call, analysts may ask Nvidia management whether any customers have pushed back orders of Hopper chips for Blackwell ones. It’s a reasonable question as we all attempt to determine what demand looks like in the back half of 2024 and into 2025. Tuesday’s AWS news represents a pushout in demand for Nvidia chips, not a loss of it. Shares of Nvidia initially traded lower on the report, but later climbed into positive territory — trading action that suggests investors recognize it’s not a situation of demand destruction. At the Club, our long-term focus remains on the overall sustainability of investments into AI rather than short-term lumpiness. We have no doubt that the age of AI remains in its infancy, but investors are understandably wondering when spending on the latest and greatest AI chips will be pulled back — not pushed out — so the companies deploying them can start to harvest profits from the current investment cycle. That would be the so-called “digestion” phase for AI chips that Wall Street has been speculating about since last year. If anything, AWS deciding to wait for the more-powerful Blackwell chips could mean the digestion phase is further out on the horizon than initially thought. NVDA .SPX 1Y mountain Nvidia’s year-to-date stock performance. 2. What’s the latest on Nvidia’s software and services revenue? In the fourth quarter, its software and services business reached an annualized revenue rate of $1 billion. We’re eager to see whether management provides an update on the scale of this fast-growing sales stream, which we covet for its recurring quality . As it expands into a larger part of Nvidia’s overall revenue pie, it should help smooth out the historically lumpy nature of hardware sales. That’s why chip stocks, including Nvidia, have been prone to boom-and-bust cycles. A key part of the segment right now is Omniverse, the company’s 3D applications platform, and updates on its adoption will be an area of interest. So, too, will be commentary on how Nvidia is helping other companies leverage AI, particularly in the health-care industry. As we learned in January at JPMorgan’s influential health-care conference, companies in the industry “already consume well over $1 billion in Nvidia GPU computing each year, directly and indirectly, through our cloud partners,” Kimberly Powell, Nvidia’s vice president of health care, said at the time. Health care stands to be a major beneficiary of AI, and it’s clearly a focus for Nvidia. Powell predicted at another investor conference in March that “health care will be the largest technology industry in the coming years.” Other software-related topics of interest include Nvidia’s work in autonomous vehicles, where revenue sharing agreements with automakers could lead to massive revenue growth over the coming decade. Another one is robotics after Nvidia offered a glimpse of what it was working on in the field at GTC in March. 3. Where are its gross margins headed? This is an important question as we transition to Blackwell and look for additional growth in the software and services business. We’ll be listening for any guidance management can provide on gross margin dynamics in the near-term and longer-term. Wall Street is projecting Nvidia’s gross margins to normalize toward the mid-70% range after a few quarters in the upper-70% range. Among the reasons for the expected move lower: Higher costs to produce Blackwell-based chips along with an expectation for more aggressive pricing versus the Hopper generation in a bid to maintain market share. Unlike last year, when Nvidia’s chips were in such short supply, there are now rival chips out there, such as AMD’s MI300X, which is angling for a corner of the inferencing market . A few other topics of interest Wednesday night will be commentary on demand from Chinese customers , given U.S. export restrictions on Nvidia’s top-of-the-line products forced the company to design throttled-back versions for customers in the country. Analysts may also ask Nvidia leadership about the AI-fueled rise in energy consumption from the data centers where the computing is conducted. There’s growing concern about the strain AI may put on the U.S. electricity grid. We think that will lead to increases in demand for the most power-efficient chips available; in this area Blackwell represents a notable improvement over Hopper, too. The demand for energy still goes up with these more advanced chips, but increased efficiency means we’re at least getting as much compute power as possible for the same amount of energy. (Jim Cramer’s Charitable Trust is long NVDA. See here for a full list of the stocks.) 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Nvidia CEO Jensen Huang delivers a keynote address during the Nvidia GTC Conference at the SAP Center in San Jose, California, on March 18, 2024.
Justin Sullivan | Getty Images
Stop us if you’ve heard this one before: A high bar has been set for Nvidia‘s upcoming earnings report. But just because it’s been the case for the past three quarters does not make it less true Wednesday night, when the leading artificial intelligence chipmaker releases fiscal first-quarter numbers.
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