The bulls are so blinded by the AI hype around Nvidia (NVDA) ahead of its earnings this week, they may be forgetting one important ingredient to the story.
If Nvidia can’t make enough of its hot-in-demand AI chips that power large language models, then it probably can’t meet the ever-rising profit expectations of Wall Street. And if that’s the case, the Nvidia hype balloon may pop.
“Nvidia expectations have been steadily moving higher in recent weeks, and the investor debate appears centered on supply rather than demand,” Stifel analyst Ruben Roy pointed out in a new client note on Tuesday.
Roy added that supply concerns and its near-term impact on Nvidia’s guidance are “top of mind.”
Nvidia is viewed as boasting the pole position in the AI space due to its H100 chips that power OpenAI’s ChatGPT platform and other budding tech applications. The company has also inked high-profile generative AI chip deals with ServiceNow (NOW) and Snowflake (SNOW).
The strong demand triggered a material upward reset in Nvidia’s guidance on May 24. Nvidia said it expects second quarter revenue to come in at about $11 billion, plus or minus 2%. Wall Street was anticipating $7.2 billion.
Nvidia’s market cap exploded by $184 billion the next day as investors raced to get a piece of a rapid growth story.
Nvidia’s shocking May outlook has Wall Street bracing for big, positive guidance from the company when it reports earnings on Aug. 23.
HSBC, KeyBanc, and BMO Capital Markets are the latest investment banks to raise their price targets on Nvidia into second quarter results. And Wells Fargo, Baird, and Morgan Stanley got the pre-earnings excitement going with bullish notes of their own last week, Yahoo Finance’s Dan Howley reported.
“Last quarter’s guidance was pretty astonishing,” Bernstein analyst Stacy Rasgon said on Yahoo Finance Live (video above). “I had to look at the number twice. I couldn’t register it in my brain, and I’ve been doing this job a fairly long time. I’ve never seen a guide like that from an established, at-scale company like we saw. So that was pretty unbelievable.”
Nvidia stock is up 15% in the last week alone, bringing the year-to-date gain to 221%.
But chip supply uncertainty must at least be acknowledged by the Nvidia bulls, as it’s very real.
VentureBeat reported that power players in tech such as Oracle (ORCL), Meta (META), and Microsoft (MSFT) may want hundreds of thousands of Nvidia’s H100 chips. The insatiable demand for the chips is spurring shortage fears in Silicon Valley, and possibly limiting Nvidia’s top line in the near-term
“Who’s getting how many H100s and when is top gossip of the valley [right now],” posted tech insider and top data scientist Andrej Karpathy on X, formerly known as Twitter, earlier this month.
Nvidia bull Rasgon acknowledged the problem as a top risk too.
“Supply is very limited, so customers can’t get what they want,” Rasgon explained. “And there’s a general behavior that happens in semiconductors and lots of other places, it’s called double ordering. When people can’t get what they want, they order more.”
“And with Nvidia, that’s one of the primary controversies is this new level of demand that we see, is that sort of the new baseline for growth? Or is it like pull forward and panic buying and is there an air pocket?” Rasgon continued. “And look, at some point, what is the chance that Nvidia will see an air pocket? It’s probably 100%. We’ve seen them before. We’ll see it again.”
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected].
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