When Nvidia publishes earnings on Wednesday, investors anticipate the chip designer to project quarterly sales above estimates. All they want to know is how much.

The growth of ChatGPT and other generative artificial intelligence applications, almost all of which are driven by the business’s graphics processors, has benefited the company the most.

The market value of Nvidia has increased by more than $700 billion this year, making it the first chip maker to reach the trillion-dollar threshold. On Monday, they experienced their greatest gain in almost three months, closing 8.5% higher.

Because of the sharp increase in its share price, Nvidia has limited space for any earnings-related disappointment, and several analysts have warned that anything short of a prediction that is greater than expected might cause its stock to crash.

Given that the majority of the S&P 500’s gains this year have come from the AI-driven advance in Nvidia and Big Tech firms, the outcomes might also determine the direction of the broader market this week.

“I’ve been covering tech since 1994 and I have never seen an environment where you are so dependent on one company to deliver,” said Inge Heydorn, partner at GP Bullhound, which owns both Nvidia and AMD shares.

“AI is really the last pillar of growth and everybody is depending on it. If Nvidia shows weakness, we could be in for quite a substantial correction in the market.”

According to Refinitiv, Wall Street anticipates the chip maker will guide for a third-quarter sales increase of around 110% to $12.50 billion. In the past two years, Nvidia has only once predicted revenue that was lower than expected.

While buy-side expectations have increased to $14 billion since last week, Citi analysts stated that they were only modelling a revenue prediction of about $12 billion.

Last week, at least 10 brokerages increased their price targets for the stock, bringing the median estimate up to $500, or 15.5% more than the previous closing.

The company’s 12-month forward price-to-earnings ratio significantly increased to more than 80 when it predicted second-quarter revenue growth of over 50% in May, but it has subsequently declined as analysts have raised their earnings estimates.

It currently trades at a significantly higher multiple than AMD’s 29, close to 40 times projected earnings for the following year.

Investors will be examining sales at Nvidia’s data centre division, which houses the company’s highly prized H100 chip used in AI, to determine whether the price is reasonable.

Only half of the demand can be satisfied, according to analysts, and Nvidia’s H100 chip is already selling for double its initial $20,000 price. The pattern, they added, may continue for several quarters.

Even still, there are some concerns about growth because a portion of the rise in demand is coming from China, where businesses are storing chips due to concerns about additional U.S. export restrictions.

“I don’t think the risk of losing China business is incorporated in numbers and this is also somewhat disturbing the picture,” Heydorn said.

The disparity between supply and demand may also prompt some customers to turn to rival AMD, whose M1300X chip aims to compete with Nvidia’s most potent AI product.

“AMD’s chips could be as much as 50% cheaper than Nvidia GPUs and somebody like Meta or Google may want to look at lowering their cost,” Piper Sandler’s Harsh Kumar said .

According to analysts, AMD anticipates beginning chip shipments in the fourth quarter and may hold 10% of the market for AI chips in 2019.

However, they cautioned AMD that catching up to Nvidia’s software CUDA, which is now the industry standard in AI and has a significant lead over the company’s comparable offering, will be difficult.

“Historically in semiconductors, the leader always has 70% or 80% share of the market but the customers always want to keep a second source around, so that the leader doesn’t overcharge, and that second source here is AMD,” Kumar said.

(Adapted from NewsWav.com)