Nvidia Stock: Should You Buy Before Earnings or Wait for a Post-Report Price Drop?
Nvidia’s Recent Earnings – A Closer Look
Nvidia, a leading designer and manufacturer of graphics processing units (GPUs), recently reported its fiscal Q3 earnings, revealing a cautiously optimistic outlook amid ongoing macroeconomic headwinds and increasingly competitive environments. The company has seen a surge in demand driven by the growing trend of artificial intelligence (AI) applications, particularly generative AI, but investors will be closely scrutinizing management’s comments on depreciation, the China market, and the competitive landscape.
The following sections will provide a deeper dive into Nvidia’s most recent performance, highlighting key areas of interest for investors. Specifically, I will look for indicators on the depreciation question – something that CEO Jensen Huang touched upon playfully during the AI conference to emphasize the sheer scale of Nvidia’s investment. I’ll also examine the competition with AMD and Big Tech’s pivot to custom chips, as well as the ongoing uncertainties surrounding Nvidia’s operations in China.
Addressing the Depreciation Question: During the Q3 earnings call, Nvidia’s management will likely outline measures to combat the concern of chip depreciation, stemming from the release of more powerful GPUs capable of demanding significantly more power. Huang’s humorous remark about “giving Hoppers away” during the AI conference hints at the fast pace of hardware obsolescence, a critical concern for shareholders. Investors will be watching closely for specific details on strategies to mitigate depreciation losses, such as extended warranties, software support, or new product offerings.
Investment Spree: Nvidia has accelerated its expansion plans, announcing multi-billion-dollar investments in burgeoning tech firms. Up to $100 billion is being allocated to OpenAI, $5 billion towards Intel, and a further £2 billion (approximately $2.6 billion) earmarked for AI startups within the U.K. Notably, these deals spark concerns over “circular financing,” where the investee companies use these funds to purchase even more Nvidia chips – intensifying depreciation concerns. The deal with AMD also warrants observation, as Big Tech companies like Meta and Microsoft are also exploring custom GPUs for AI, including Google’s TPUs and Tesla’s ambitions for an in-house fab.
Competitive Dynamics: The AI chip market is becoming increasingly crowded. AMD is aiming to take a larger share, while Big Tech companies are developing their own silicon for AI workloads – all vying for Nvidia’s dominance. Analyst comments during the Q3 call will assess if this intensifying competition impacts Nvidia’s growth trajectory.
The China Factor: Nvidia’s business in China remains a significant wildcard. Despite the resumption of exports (following a revenue-sharing agreement) this market faces continued scrutiny, with Chinese companies urged against using Nvidia chips due to cybersecurity fears. Huang’s recent remarks about China “nanoseconds behind” are particularly noteworthy and indicates the rapidly evolving landscape.
Final Assessment: While Nvidia’s Q3 earnings are expected to portray a bullish picture (given the ongoing AI capex boom), investors should be attentive to how management addresses depreciation concerns, evaluates the competitive environment, and discusses the outlook for its China business. The fair valuation of 44x P/E multiple indicates that the stock is reasonably valued. Based on this assessment, I recommend a small pop in the stock price after the Q3 reporting, considering Nvidia’s trajectory.
