Nvidia: The Most Crucial Stock in the AI Race - Will Q2 Earnings Deliver?

Nvidia, the leading player in the AI boom, has given its investors a thrilling ride for the past two years. However, the past few months have been a roller coaster, with the company's market cap fluctuating by nearly nine times since the end of 2022. After reaching an all-time high in June and briefly becoming the world's most valuable public company, Nvidia experienced a sharp decline, shedding approximately $800 billion in market cap. Now, the company is on the verge of another rally, inching close to its record high. As Nvidia prepares to report its Q2 earnings on Wednesday, Wall Street is closely monitoring the stock's volatility. Any sign of a decline in AI demand or a leading cloud customer tightening its belt could result in significant revenue slippage. Nvidia's revenue has more than tripled in the past three quarters, with most of the growth coming from the data center business. Analysts expect another quarter of triple-digit growth, but at a reduced pace of 112% to $28. 7 billion. However, the growth is expected to slow down in the next six quarters. Investors will be paying close attention to Nvidia's forecast for the October quarter, with expectations of a 75% growth to $31. 7 billion. Optimistic guidance will suggest that Nvidia's deep-pocketed clients are willing to continue investing in the AI buildout, while a disappointing forecast could raise concerns about infrastructure spending. Despite Nvidia's expanding profit margin, the company still faces questions about the long-term return on investment for its clients. During Nvidia's last earnings call in May, CFO Collette Kress provided data points suggesting that cloud providers, which account for over 40% of Nvidia's revenue, would generate $5 in revenue for every $1 spent on Nvidia chips over four years.More such stats are likely on the way. The other major question facing Nvidia is the timeline for its next-generation AI chips, dubbed Blackwell. The Information reported earlier this month that the company is facing production issues, which will likely push big shipments back into the first quarter of 2025. Nvidia said at the time that production was on track to ramp in the second half of the year. The report came after Nvidia CEO Jensen Huang surprised investors and analysts in May by saying the company will see 'a lot' of Blackwell revenue this fiscal year. While Nvidia's current generation of chips, called Hopper, remain the premium option for deploying AI applications like ChatGPT, competition is mounting from Advanced Micro Devices, Google, and a slew of startups. This pressure is forcing Nvidia to maintain its performance lead through a smooth upgrade cycle. Even with a potential Blackwell delay, that revenue could just get pushed back into a future quarter while boosting current Hopper sales, especially the newer H200 chip. Many of Nvidia's leading customers say they need the additional processing power of Blackwell chips in order to train more advanced next-generation AI models. But they'll take what they can get. Nvidia is expected to deemphasize its Blackwell B100/B200 GPU allocation in favor of ramping up its Hopper H200s in the second half of the year.