Nvidia fueled by big tech buying chips

Semiconductor stocks declined on Monday as investors awaited the upcoming financial results from Nvidia (NVDA), a leading name in artificial intelligence (AI), which are set to be announced after the market closes on Wednesday.

Nvidia’s shares ended the day 2.3% lower, partially reversing the gains made on Friday as anticipation for the company’s results grew. Other semiconductor stocks also experienced a dip, with the PHLX Semiconductor Sector Index (SOX) falling by 2.5% on Monday.

"We absolutely think this is still the best way to play AI," technology analyst Ruben Roy claims. "Nvidia has emerged not only as a compute player in AI, but there's an entire ecosystem built around AI, which includes networking software and, increasingly, AI models themselves. And Nvidia has been building up over the last many years, all of those technologies. And we don't think anyone else is competitive to the extent that Nvidia is."

Shares of Nvidia (NVDA) are up

Shares of Nvidia (NVDA) are up over 160% year-to-date, and with the chipmaker's second quarter earnings report due out on Wednesday, August 28, the company has another opportunity to see some major stock movements.

Analysts expect Nvidia to report second-quarter revenue of $28.46 billion, up from $13.51 billion in last year's second quarter.

Nvidia has beaten revenue estimates in seven straight quarters and nine of the last 10 quarters. The company has also beaten earnings per share estimates in six straight quarters and eight of the last 10 quarters.

Alongside positive analyst coverage, Nvidia's stock received a lift from remarks by Federal Reserve Chairman Jerome Powell earlier today. Powell indicated that a change in interest rate policy is imminent, hinting at a likely rate cut in the Fed's September meeting. Lower interest rates typically act as a positive catalyst for the broader stock market, and such environments often drive significant gains for growth stocks in particular.

Nvidia’s stock price has risen more than 3,775 percent since 2019, meaning employees who receive stock grants as compensation have quickly become millionaires. You'd be mistaken if you thought they’d be living lavish lifestyles and retiring early. While these employees can purchase expensive sports and luxury cars and even have them custom-painted in the iconic Nvidia colors, those fancy cars spend more time in Nvidia’s parking lot than anywhere else.

Nvidia’s Q2 earning report

Nvidia has played a crucial role in the record-breaking performance of U.S. stocks in 2024, driven by high hopes for its AI-powered growth. In June, Nvidia even overtook Microsoft (MSFT) briefly to become the world’s most valuable company by market capitalization.

With its last update, Nvidia guided for revenue of roughly $28 billion and a non-GAAP (adjusted) gross margin of 75.5% in fiscal Q2. Wall Street thinks the business will deliver even better results, with the average analyst estimate calling for revenue of $28.6 billion.

Nvidia has consistently exceeded sales and earnings expectations over the past year, and indications are that the company will likely continue this trend when it reports its earnings next week. Capital expenditure data and guidance from major clients like Microsoft and Meta Platforms suggest that Nvidia, a leader in AI chips, is well-positioned to deliver strong sales figures.

However, investors should be aware that high expectations for the upcoming Q2 release could lead to volatility. There are reports suggesting possible delays in Nvidia's next-generation Blackwell processors and scrutiny on future guidance, which could create risks for the stock. Even if the company surpasses revenue and earnings forecasts, its share price might experience a pullback.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.