In recent weeks, technology stocks have experienced a mixed bag of performance, with mega-cap names like Alphabet (GOOG, GOOGL), Amazon (AMZN), and Microsoft (MSFT) seeing their shares fall as investors begin to question the staying power of artificial intelligence (AI). Despite a recent rebound in the tech sector, these companies have all faced declines in their stock prices over the last month.
Alphabet, the parent company of Google, has seen its shares drop by 14%, while Amazon’s stock is down about 8%. Microsoft has also experienced a decline of more than 7% as of Thursday’s close. However, all eyes are now on Nvidia, a leading chip company, whose upcoming earnings report could potentially be the next big catalyst for Big Tech and the AI trade as a whole.
According to Yahoo Finance’s Dan Howley, Nvidia’s performance has the potential to turn around the AI trade more than any other player in the market. Unlike software firms like Alphabet, Amazon, and Microsoft, Nvidia has not faced any revenue-related issues. The company’s Hopper AI chips are highly sought after in the market, and it is set to ramp up production of its Blackwell line later this year.
Nvidia currently controls a significant portion of the market for high-powered AI chips, with estimates ranging from 80% to 95%, as reported by Reuters. This means that whenever a company invests in AI capabilities, it is likely using or purchasing Nvidia’s processors.
However, Nvidia’s upcoming second-quarter report marks the beginning of several quarters of challenging year-over-year revenue growth comparisons. In the company’s fiscal Q2 2024, revenue reached $13.5 billion, marking a 101% increase year over year. Data center revenue also saw significant growth, reaching $10.3 billion, up 141%.
Subsequent quarters have continued to show impressive year-over-year gains for Nvidia. In the most recent quarter, the company reported revenue of $26 billion, a staggering 262% increase from the previous year’s $7.19 billion.
For the upcoming second quarter report, Wall Street analysts are anticipating revenue of $28.6 billion, representing a 112% year-over-year jump. While this still signifies significant revenue growth, it is not as remarkable as the growth seen in previous quarters, which could potentially deter some investors.
Despite the potential slowdown in growth, Nvidia is still expected to continue generating substantial revenue, and Wall Street remains bullish on the company. As of Thursday, 66 analysts had Buy ratings on Nvidia’s stock, with only seven Hold ratings and one Sell rating.
In conclusion, while Alphabet, Amazon, and Microsoft may be facing uncertainties in their AI spending, Nvidia’s strong position in the market and upcoming earnings report could potentially reignite the AI trade and drive further growth in the tech sector. Investors will be closely watching Nvidia’s performance in the coming weeks to gauge the future trajectory of the AI industry.