Nvidia results to ripple through global sharemarkets this week

The big question investors are asking this week is whether Nvidia’s results will beat expectations enough to cause a further leg-up in its share price.

Chief executive Jensen Huang has overseen a sensational rise in Nvidia’s share price. Picture: Getty Images

One way or another Nvidia will drive global markets this week.

With a stellar rise in earnings and valuation that’s made it the third-biggest company in the S&P 500 and best year-to-date performer among “Magnificent Seven” tech giants, the AI superstar has the potential to cause ripples across global markets when it reports after the US close on Wednesday.

After surging 239 per cent in 2023, Nvidia’s stock price has risen 87 per cent so far this year, accounting for about half of the rise in the value of the S&P 500 which is up 11 per cent this year.

With a market capitalisation of $US2.27 trillion ($3.39 trillion), Nvidia is about 15 times bigger than the value of BHP and is fast approaching twice the value of Australia’s entire stockmarket.

But while the US sharemarket set record highs near 5300 points this month amid a rebound in Apple and further gains in Alphabet, plus renewed hope of interest rate cuts, Nvidia’s has gone sideways since March – as have some other Magnificent Seven members including Amazon, Meta, Microsoft and Tesla.

Of course the consensus view on Nvidia remains strongly bullish and that is where the risk lies.

Investors have been chasing Nvidia shares for two years.

They got another chance to buy in March and April when the share price dipped 22 per cent as higher-than-expected US inflation data dented hopes of interest rate cuts.

Since then investors have been reassured that a restart of interest rate hikes is “unlikely” and economic data have pointed to slowdown in growth with less inflation.

The vast majority of analysts surveyed by Bloomberg have “buy” ratings on Nvidia and the consensus 12-month price target of $US1028 is 11 per cent above the current share price.

The consensus price target implies a considerable slowdown in Nvidia’s share price appreciation, which has averaged 125 per cent per annum for the past decade. But Nvidia has consistently beaten consensus expectations for earnings growth and share price appreciation for years.

Strong earnings growth in the past year lowered its price-to-earnings valuation to about 34 times from around 60 times even as its share price rose about 300 per cent.

The big question investors are asking this week is whether Nvidia’s quarterly earnings and outlook will beat expectations enough to cause a further leg up in its share price that could power the S&P 500 above 5300.

Any disappointment could potentially trigger a sharp fall in Nvidia that could hit the US market because so much of its rise in the past two years has been driven by AI stocks.

“We know Nvidia will likely beat the sell-side consensus estimates for revenue, earnings per share and gross margins – they always do – but it’s the extent of the beat that matters,” said Chris Weston, head of research at Pepperstone.

The consensus is looking for Nvidia to announce record quarterly sales of $US24.61bn for the March quarter sales and forecast $US26.72bn in June quarter sales.

Pepperstone’s Weston says Nvidia probably needs to announce at least $US26bn in March quarter sales and project over $US29bn for the June quarter with chief executive Jensen Huang inspiring guidance to get the share price “pumping” to new record highs again.

In February Nvidia shares surged 16.4 per cent on the day after the company’s quarterly report, pushing the S&P 500 up 2.1 per cent to a record high.

Nvidia’s results this week will come just hours after the US Federal Open Market Committee releases the minutes of its monetary policy meeting this month.

Earlier this month Goldman Sachs boosted its 12-month target price on Nvidia by 10 per cent to $US1100.

The US investment bank raised its earnings per share forecasts the next few years by an average of 8 per cent per annum based on industry data showing robust AI server demand and improving supply.

“Despite Nvidia’s year-to-date outperformance, we see positive earnings per share revisions driving another leg up in the stock, especially with the stock trading at 35 times or only a 36 per cent premium to our coverage universe versus its past three-year median premium of 160 per cent,” said Goldman Sachs analysts led by Toshiya Hari.

However, billionaire US investor Stanley Druckenmiller slashed his big bet in the chipmaker earlier this year, saying the swift artificial intelligence boom could be overdone in the short term.

“We did cut that and a lot of other positions in late March. I just need a break. We’ve had a hell of a run. A lot of what we recognised has become recognised by the marketplace now,” Druckenmiller told CNBC. He reduced the bet after “the stock went from $US150 to $US900.”

Druckenmiller said AI “might be a little overhyped now, but underhyped long term”.