The bulls were blinded by the AI hype around Nvidia (NVDA) ahead of its earnings this week, and may have forgotten an important element in the story.
If Nvidia can’t produce enough of the much-needed AI chips that power large language models, it probably can’t meet Wall Street’s ever-increasing profit expectations. And if that’s the case, the Nvidia hype balloon might just burst.
“Nvidia’s outlook has been moving steadily higher in recent weeks, and investor discussion appears to be focused on supply rather than demand,” Robin Roy, a Stifel analyst, noted in a new note to client Tuesday.
Roy added that supply concerns and their near-term impact on Nvidia’s guidance are “our top priority.”
Nvidia is seen to be proud of its AI leadership position due to its H100 chipset powering OpenAI’s ChatGPT platform and other emerging technology applications. The company has also signed high-profile AI chip deals with ServiceNow (NOW) and Snowflake (SNOW).
Strong demand triggered a material upward reset in Nvidia’s guidance on May 24. Nvidia said it expects second-quarter revenue to be about $11 billion, plus or minus 2%. Wall Street had expected $7.2 billion.
Nvidia’s market capitalization rose $184 billion the next day as investors raced to get a piece of the rapid growth story.
Nvidia’s shocking forecast for the month of May has Wall Street bracing for big, positive guidance from the company when it reports earnings on August 23rd.
HSBC, KeyBanc and BMO Capital Markets are the latest investment banks to raise their price targets on Nvidia in their second quarter results. Dan Hawley of Yahoo Finance reported that Wells Fargo, Baird and Morgan Stanley got the pre-earnings buzz with their bullish remarks last week.
“The guidance last quarter was pretty amazing,” Stacy Rasgon, an analyst at Bernstein, said on Yahoo Finance Live (video above). “I had to look at the number twice. I couldn’t get it in my mind, and I’ve been at this task for quite a long time. I’ve never seen such evidence from a company so well-established and large-scale” as we have seen. So that was unbelievable.”
Nvidia stock is up 15% in the past week alone, bringing YTD gains to 221%.
But the uncertainty about chip supply by Nvidia’s bulls must at least be acknowledged, because it’s very real.
VentureBeat mentioned Powerful technology players such as Oracle (ORCL), Meta (META), and Microsoft (MSFT) may want hundreds of thousands of Nvidia H100 chipsets. Insatiable demand for chips is fueling shortage fears in Silicon Valley, and may limit Nvidia’s product line in the near term.
“Who will get the H100 and when is the hottest rumor in the valley (for now)” to publish Andre Karpathy, a prominent tech insider and data scientist, spoke on X, formerly known as Twitter, earlier this month.
Nvidia Bull Rasgon has recognized the issue as a significant risk as well.
“The 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 a lot of other places, called double demand. When people can’t get what they want, they demand more.”
“And with Nvidia, that’s one of the primary disagreements about this new level of demand that we’re seeing, is this kind of a new baseline for growth? Or is it like dragging 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 them again.”
Brian Suzy He is the Executive Editor of Yahoo Finance. Follow Suzy on Twitter @ Brian Suzy and on linkedin. Tips on deals, mergers, activist positions, or anything else? Email email@example.com.
Click here for the latest stock market news and in-depth analysis, including the events that move stocks
Read the latest financial and business news from Yahoo Finance