NVIDIA is set to release its quarterly earnings report soon, and if it continues its trend of surpassing expectations, it could trigger a double celebration among investors and the U.S. stock market. In the past 20 financial quarters, NVIDIA has exceeded expectations in 19 of them.
The company's successful bet on artificial intelligence, particularly following OpenAI's release of ChatGPT, has made AI-themed trading popular. This year, NVIDIA's stock price has more than tripled, contributing to an 18% rise in the S&P 500 index.
Both tech giants and startups are heavily investing in AI technology development, a field where NVIDIA's semiconductor chips excel. NVIDIA CEO Jensen Huang has stated that advancements in AI technology are ushering in a new era of computing, which has propelled the company's market value to $1 trillion.
Investors, anticipating AI technology to help numerous companies increase revenue and save costs, have heavily bet on tech giants this year. Expectations for NVIDIA are particularly high, with Wall Street analysts predicting the company's revenue for the last quarter to be $16.2 billion and profits to be $7.2 billion. In comparison, NVIDIA's revenue and profit in the same period last year were $5.9 billion and $880 million, respectively.
According to FactSet data, NVIDIA's performance in 19 out of the last 20 financial quarters has exceeded analyst expectations, significantly impacting stock market trends. Wall Street currently expects NVIDIA's quarterly revenue to reach $22 billion by the fall of 2025.
Analysts say investors are hoping NVIDIA's rapid growth rate will continue for many years and are looking for more concrete signs to prove this. Despite recent flat performance due to uncertainties in semiconductor industry policies, new economic data is increasingly convincing investors that the Federal Reserve's interest rate hikes to combat inflation will not lead to an economic recession, and the U.S. economy could achieve a soft landing. The U.S. stock market has already seen its longest streak of consecutive gains since 2016, returning to near-record highs.
Investors have heavily bought stocks of the so-called "Magnificent Seven" tech giants, including Apple, Microsoft, Google, Amazon, NVIDIA, Tesla, and Meta, Facebook's parent company. They are also betting through options, with the most popular options being call options with strike prices of $500 or $505. Meanwhile, NVIDIA's stock price continued to rise by 1.04% to $498.10 during Monday's midday trading in Eastern Time.
Analysts suggest that NVIDIA's stock price may continue to surge. In May this year, after NVIDIA announced quarterly results and guidance that far exceeded expectations, its stock soared by 24% for the month, triggering a sharp rise in the U.S. stock market around the AI theme.
For the third quarter, NVIDIA and Amazon are expected to be the biggest contributors to the profit growth of the S&P 500 index. Data shows that excluding these two companies, the profit growth of S&P 500 companies would be only 1.5% instead of the current 4.1%.
The majority of analysts continue to be bullish on NVIDIA. Out of 52 analysts researching NVIDIA, 49 rate the stock as a buy, and the other three as a hold. The average target price given by analysts is $655.60, about 33% higher than NVIDIA's current stock price.
However, the market's high expectations for NVIDIA have also caused concern among some investors. Analysts indicate that in the long term, this means NVIDIA's margin for error is significantly reduced.
