Nvidia shares slipped Wednesday ahead of its fiscal second-quarter earnings report, due after the close, as investors weighed rising memory-chip costs against expectations for another quarter of sharp growth. Wall Street is also scrutinizing Nvidia's expanding financing deals with AI customers and suppliers.
Nvidia stock sank more than 1% to $210.04 on Wednesday, hours before the chipmaker reports fiscal second-quarter results after the market close. Broader indexes also slipped, with the Dow down 0.3% and the Nasdaq composite off 0.4%, as investors appeared concerned about inflation staying elevated.
With a market capitalization of $5.1 trillion, Nvidia is the world's most valuable company, and its results are used as a barometer for the AI trade.
Wall Street braces for another blowout quarter
Analysts polled by FactSet expect Nvidia to report adjusted earnings of $2.09 a share on sales of $92.27 billion for the quarter ended July 26, up from an adjusted $1.05 a share on sales of $46.74 billion a year earlier. Estimates compiled by LSEG put the consensus close, at $2.10 a share on $92.17 billion in revenue, which would leave revenue almost doubling from $46.7 billion a year ago.
For the current fiscal third quarter, Wall Street models adjusted earnings of $2.37 a share on sales of $104.18 billion, up from $1.30 a share on $57.01 billion a year earlier. Analysts polled by LSEG expect Nvidia to guide toward 83% revenue growth, with the highest estimate reaching $112.2 billion.
Stock cooled after a three-year rally
Nvidia shares are up just 14% this year as of Tuesday's close, slightly outperforming the Nasdaq, following a historic three-year rally. The stock rebounded 2.2% on Tuesday, snapping a seven-day losing streak, and has built a cup-with-handle base with a buy point of 227.92. A secondary buy point of 236.54 marks the stock's all-time high, reached on May 14.
Memory costs threaten margins
Nvidia has guided for an adjusted gross margin of 75% in fiscal Q2, unchanged from fiscal Q1, but analysts polled by FactSet now see margin dipping to 74.8% in fiscal Q3. Nvidia has also reportedly warned customers it is raising prices by at least 15% early next year for its AI computer systems, citing higher memory costs. Server DRAM prices rose 64% in the second half of last year, and Trendforce expects a 260% jump in 2026.
Financing deals draw scrutiny
Nvidia has rounded up more than $500 billion in third-party capital to fund AI infrastructure buildouts, partnering with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR, with $125 billion coming from Nvidia itself. BofA Securities analyst Vivek Arya said the arrangement risks "diluting earnings quality and potentially inflating higher-risk investments," though he still expects Nvidia to deliver a beat-and-raise report.
Arya rates Nvidia stock buy with a price target of 350. Investors will also watch for updates on the ramp of Nvidia's next-generation Vera Rubin platform, whose first shipments are due in the current fiscal third quarter.
Sources: Investor's Business Daily, CNBC, Investor's Business Daily
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