NVIDIA Q3 earnings preview: can sky-high expectations be met?

NVIDIA Q3 earnings date

NVIDIA is set to report third quarter (Q3) results on 21 November after market close.

Earnings expectation

For the September quarter, the AI chip leader expects revenue of $16.09 billion, representing a 171.7% increase from the same period last year, and 18% up from the second quarter. Its earnings per share (EPS) is estimated to grow by 400% year-on-year (YoY) to $3.39 per share.

Earnings key watch

Hot chips

As a market leader in the AI chip world, NVIDIA has enjoyed significant pricing power and benefits from surging demand so far this year. Not only have major US tech giants purchase NVIDIA's chips, but Chinese tech companies like Tencent have stocked up NVIDIA's made-for-China chips, despite the elevated chip export restrictions imposed by the Biden administration.

Therefore, it’s reasonable to expect NVIDIA's chip sales in the third quarter to sustain their robust momentum from the previous quarters, with the anticipation that revenue from the “Data Center” division will reach $12.7 billion—a 232% year-on-year increase from $10.32 billion in the second quarter.

However, emerging signs indicate that a shifting landscape in the AI chip world is on the way.

There’s no doubt that the US government’s chip restrictions have cast a shadow over NVIDIA's Chinese market which contributes nearly one-quarter of the chip market’s total revenue. Despite NVIDIA's plans to release three new chips for China in the face of the new bans, Chinese companies are beginning to lose faith and seek out non-US suppliers. Baidu, for example, recently announced a new deal to source chip from Huawei. As a result, NVIDIA's outlook for the quarter and the year ahead, in the face of this new reality, will be in focus during its Q3 earnings.

The return of Gaming

Moreover, NVIDIA’s “Gaming” and “Professional Visualization” sectors are expected to further recover in the third quarter. In the previous quarter, revenue from the Gaming sector and Professional Visualization jumped 22% and 24% year-over-year, respectively. The company is anticipating that strong demand across most regions for gaming products will result in third quarter revenue from the Gaming sector of $2.78 billion, a 76.5% increase compared to the same quarter in 2022.

NVIDIA rating and technical analysis

Based on ratings from 38 Wall Street analysts, 37 suggested the stock as a buy, while one rated it as a hold. For the next 12 months' price target, the average price range for NVIDIA is $560-$648, representing a 14%-32% premium from today’s stock price.

From a technical standpoint, after breaking out from the August-October downward trendline, NVIDIA's prices have surged more than 20% in November and 260% year-to-date, with the record high marked in August now back in sight.

While the newly-formed ascending trendline should support maintaining its upward trajectory, the approaching psychological $500 level is poised to play a crucial role with great potential to prompt profit-taking, similar to what happened at the end of August. Thus, a move above this level will help the price revisit its record high at $520, but failing to do so may leave the ascending tunnel at risk of breaching, leading to a move back towards the $470 level.

Nvidia Q3 summary

In a year defined by the AI gold rush, it’s easy to understand that expectations are sky-high for the leader in the AI chip world. Additionally, NVIDIA's Q3 earnings come at a time when its stock price has been rising sharply, with another record high seemingly on the horizon. Now the question is whether NVIDIA's upcoming report can meet such high expectations and lofty valuation.