Wall Street’s bullishness on
Nvidia
ahead of the chipmaker’s hotly-anticipated earnings this week is reaching fever pitch—a trend that has the potential to be a risk for both the stock and wider sentiment if the company doesn’t deliver.
Shares in
Nvidia
(ticker: NVDA) have rallied almost 200% this year, buoying the
S&P 500
and
Nasdaq
indexes, as the chip maker found itself a key beneficiary of the investing frenzy over artificial intelligence. Perhaps for good reason: Nvidia’s advanced chips look crucial to growth in AI, providing fundamental support for the stock.
With Nvidia set to report second-quarter earnings on Wednesday, Wall Street has been banging the drum, with a steady stream of analysts outlining bullish expectations into the company’s results—a trend that has shown no sign of stopping.
“This is one of the most important earnings weeks of the year with the ‘Godfather of AI’ CEO Jensen Huang and Nvidia set to report its highly anticipated earnings,” Wedbush analyst Dan Ives wrote in a Sunday note. “We expect a bullish outlook from Nvidia that should be the fuel in the engine to continue this tech rally.”
“We expect Nvidia to report results and guidance meaningfully above consensus expectations driven by strong demand and incremental capacity,” KeyBanc analysts led by John Vinh wrote in a Sunday note. “We see favorable risk/reward into earnings and remain Overweight.”
This level of optimism has become a familiar refrain on Wall Street. Analysts seem increasingly confident that “beat-and-raise” results are coming, referring to when earnings beat expectations and the outlook is raised—among the best results a company can post.
It raises the question: if everyone expects a beat-and-raise, is even a beat-and-raise a beat-and-raise?
There is little doubt that Nvidia is on track to post blowout results, with analysts surveyed by FactSet calling for record levels of both earnings per share and revenue. At least a dozen analysts have raised price targets on Nvidia stock within the last week. It raises the question of how stellar the results will really have to be to wow Wall Street at this point, with analysts so overwhelmingly bullish.
That could increase the downside risk to the stock posed by good-but-not-great, muted, or even somewhat negative earnings. Given how much buoyancy Nvidia shares have provided to the wider stock market, even investors that tend to ignore the tech sector might want to pay attention.
Write to Jack Denton at [email protected]
Read the full article here
