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Should You Buy, Sell, or Hold NVIDIA Stock Before Q2 Earnings?
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After finishing 2023 on a high note, NVIDIA Corporation (NVDA - Free Report) squashed bubble fears, and its shares soared 155.4% year to date, outperforming the Semiconductor - General industry’s gain of 113.8%. However, NVIDIA’s stock price faced hiccups in early August on fears that its tech customers may curtail artificial intelligence (AI) spending budgets.
Image Source: Zacks Investment Research
But NVIDIA’s shares did recover ahead of the much-awaited second-quarter fiscal earnings report that can have rippling effects on the broader tech sector. Therefore, investors are rightly contemplating whether to book profits and move on or hold on to NVIDIA’s shares for better returns in the future. Let us, thus, look at how to play NVIDIA’s shares as of now.
NVIDIA’s High-Profit Margin – Unsustainable
NVIDIA’s high-profit margin may lead to its vulnerability soon. For first-quarter fiscal 2025, NVIDIA’s gross profit margin increased to 78.9% from 66.8% a year ago. However, sustaining such higher profit margins is difficult as demand-supply disparity will lessen in the semiconductor industry where peers are also manufacturing commendable competing products.
In a competitive environment, NVIDIA would be compelled to lower the price of its products, and profit margins could take a beating. Huawei is planning to introduce its Ascend 910C chips as early as October, which can compete with NVIDIA’s H100 AI chips. Moreover, any possible trade ban on NVIDIA from selling its H20 AI chips to China may hit its profit margins.
Why You Shouldn’t Sell NVIDIA Stock
NVIDIA benefits from tech behemoths’ spending on AI-related infrastructure. With the Federal Reserve widely expected to trim interest rates in the September policy meeting, mega-tech capital expenditure (CAPEX) spending is expected to rise, a blessing for NVIDIA.
AI, anyhow, is a growing trend and not a temporary phenomenon. NVIDIA’s strong positioning in the AI field should help its shares rise. MarketsandMarkets estimated the AI industry to grow from $214.6 billion in 2024 to $1,339.1 billion by 2030.
NVIDIA is also well-poised to make the most of the growing gaming market through its primary gaming graphic processing units (GPU) product line, GeForce. According to research firm Newzoo, the global gaming market will generate $187.7 billion in revenues this year. At the same time, NVIDIA is collaborating with Siemens to build an industrial metaverse, a market that is expected to reach $228.6 billion in 2029 from $28.7 billion in 2024, per MarketsandMarkets.
Meanwhile, rumors regarding the production delay of NVIDIA’s Blackwell AI chips may have caused a lot of concerns. But NVIDIA recently confirmed that Blackwell sampling has begun, and the next-generation chips will be launched later this year. NVIDIA is the worldwide leader in AI chip design and software, giving the company a competitive edge over its rivals.
What’s more, NVIDIA is yet again expected to post encouraging earnings for the second quarter of fiscal 2025, which may help its share prices to climb. NVIDIA is projected to report earnings per share of $0.63 for the fiscal second quarter, more than $0.27 a year ago, indicating a jump of 133.3%.
NVIDIA has an average four-quarter positive earnings surprise of 18.4%, a tell-tale indication that the stock has a reasonable chance to display earnings growth in the forthcoming earnings release on Wednesday, after the bell.
Image Source: Zacks Investment Research
NVIDIA Stock is Pricey – Here’s How to Trade it
Despite the positives, buying the NVIDIA stock may burn a hole in your pocket. This is because the unquenchable demand for AI models and dominance in GPUs has made the NVIDIA stock expensive.
By looking at the price/earnings ratio, NVIDIA stock currently trades at 46.9X forward earnings. However, NVIDIA’s rivals such as Advanced Micro Devices, Inc. (AMD - Free Report) , QUALCOMM Incorporated (QCOM - Free Report) , Broadcom Inc. (AVGO - Free Report) and Texas Instruments Incorporated’s (TXN - Free Report) forward earnings multiples are 44.6X, 16.9X, 33.8X and 40.7X, respectively.
Image Source: Zacks Investment Research
Hence, astute investors should wait to buy on the dips. And those who have already bought NVIDIA’s shares should hang on to it. After all, NVIDIA stock is for the long run, as AI is here to stay. NVIDIA has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
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Should You Buy, Sell, or Hold NVIDIA Stock Before Q2 Earnings?
After finishing 2023 on a high note, NVIDIA Corporation (NVDA - Free Report) squashed bubble fears, and its shares soared 155.4% year to date, outperforming the Semiconductor - General industry’s gain of 113.8%. However, NVIDIA’s stock price faced hiccups in early August on fears that its tech customers may curtail artificial intelligence (AI) spending budgets.
Image Source: Zacks Investment Research
But NVIDIA’s shares did recover ahead of the much-awaited second-quarter fiscal earnings report that can have rippling effects on the broader tech sector. Therefore, investors are rightly contemplating whether to book profits and move on or hold on to NVIDIA’s shares for better returns in the future. Let us, thus, look at how to play NVIDIA’s shares as of now.
NVIDIA’s High-Profit Margin – Unsustainable
NVIDIA’s high-profit margin may lead to its vulnerability soon. For first-quarter fiscal 2025, NVIDIA’s gross profit margin increased to 78.9% from 66.8% a year ago. However, sustaining such higher profit margins is difficult as demand-supply disparity will lessen in the semiconductor industry where peers are also manufacturing commendable competing products.
In a competitive environment, NVIDIA would be compelled to lower the price of its products, and profit margins could take a beating. Huawei is planning to introduce its Ascend 910C chips as early as October, which can compete with NVIDIA’s H100 AI chips. Moreover, any possible trade ban on NVIDIA from selling its H20 AI chips to China may hit its profit margins.
Why You Shouldn’t Sell NVIDIA Stock
NVIDIA benefits from tech behemoths’ spending on AI-related infrastructure. With the Federal Reserve widely expected to trim interest rates in the September policy meeting, mega-tech capital expenditure (CAPEX) spending is expected to rise, a blessing for NVIDIA.
AI, anyhow, is a growing trend and not a temporary phenomenon. NVIDIA’s strong positioning in the AI field should help its shares rise. MarketsandMarkets estimated the AI industry to grow from $214.6 billion in 2024 to $1,339.1 billion by 2030.
NVIDIA is also well-poised to make the most of the growing gaming market through its primary gaming graphic processing units (GPU) product line, GeForce. According to research firm Newzoo, the global gaming market will generate $187.7 billion in revenues this year. At the same time, NVIDIA is collaborating with Siemens to build an industrial metaverse, a market that is expected to reach $228.6 billion in 2029 from $28.7 billion in 2024, per MarketsandMarkets.
Meanwhile, rumors regarding the production delay of NVIDIA’s Blackwell AI chips may have caused a lot of concerns. But NVIDIA recently confirmed that Blackwell sampling has begun, and the next-generation chips will be launched later this year. NVIDIA is the worldwide leader in AI chip design and software, giving the company a competitive edge over its rivals.
What’s more, NVIDIA is yet again expected to post encouraging earnings for the second quarter of fiscal 2025, which may help its share prices to climb. NVIDIA is projected to report earnings per share of $0.63 for the fiscal second quarter, more than $0.27 a year ago, indicating a jump of 133.3%.
NVIDIA has an average four-quarter positive earnings surprise of 18.4%, a tell-tale indication that the stock has a reasonable chance to display earnings growth in the forthcoming earnings release on Wednesday, after the bell.
Image Source: Zacks Investment Research
NVIDIA Stock is Pricey – Here’s How to Trade it
Despite the positives, buying the NVIDIA stock may burn a hole in your pocket. This is because the unquenchable demand for AI models and dominance in GPUs has made the NVIDIA stock expensive.
By looking at the price/earnings ratio, NVIDIA stock currently trades at 46.9X forward earnings. However, NVIDIA’s rivals such as Advanced Micro Devices, Inc. (AMD - Free Report) , QUALCOMM Incorporated (QCOM - Free Report) , Broadcom Inc. (AVGO - Free Report) and Texas Instruments Incorporated’s (TXN - Free Report) forward earnings multiples are 44.6X, 16.9X, 33.8X and 40.7X, respectively.
Image Source: Zacks Investment Research
Hence, astute investors should wait to buy on the dips. And those who have already bought NVIDIA’s shares should hang on to it. After all, NVIDIA stock is for the long run, as AI is here to stay. NVIDIA has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.