Big Tech's biggest test

Depending on who you ask, the AI trade is either a huge bubble that’s about to destroy the economy, or an underestimated force for good. But the skeptics and bulls alike can agree on one thing: Nvidia is the ultimate bellwether of how investors are feeling about AI.

Shareholders don’t exactly seem resoundingly optimistic ahead of Kingvidia’s Q2 report, which hits after the closing bell tomorrow: On Monday, shares capped off a seven-day losing streak, their worst week in four years. Some of that was just basic pattern recognition: In each of its last four earnings reports, Nvidia declined immediately after. The stock gained 2.19% today.

But if you zoom out, Nvidia’s been struggling for a while now: Since its last earnings report in May, shares are down roughly 4.5%. The company has faced fierce competition from rivals, and is in the center of larger questions about how many winners of the AI buildout there will actually be.

Most analysts still rate the company a Buy, and some believe that Nvidia’s ‘meh’ performance presents a huge opportunity to snag shares on the cheap. But eagle-eyed investors will be scrutinizing its report closely.

Don’t call it a comeback—quite yet

Broadly, investors are expecting revenue to reach $92.2 billion for Q2, which would be a roughly 97% jump from last year. Last quarter, Nvidia reported $81.62 billion, an 85% leap year-over-year.

Here are some other tidbits to watch for in the earnings report:

• Nvidia’s customer base: The company’s explosive rise has been fueled by sky-high demand from its biggest customers, the hyperscalers (aka Amazon, Google, and Microsoft). But investors want to see that Nvidia has staying power—and to do that, it needs to expand its customer base beyond the biggest Big Tech companies.
• The $1 trillion jackpot: At Nvidia’s GTC conference earlier this year, CEO Jensen Huang said he projects $1 trillion in sales through 2027 via the company’s Blackwell and Vera Rubin products. Investors will want an update on how that’s coming along.
• The web of AI financing: The ultimate question is whether all of the complicated financing techniques propping up the AI infrastructure buildout will lead to a huge payoff—or crumble like a house of cards. Specifically, shareholders will want more details about Nvidia’s new deal with some of Wall Street’s biggest asset managers.

“Bottom line: How Huang frames NVIDIA’s growing and complex set of circular financing arrangements across the AI ecosystem may become a larger focus on Wednesday’s call,” explained Ameriprise Chief Market Strategist Anthony Saglimbene in a note. “How his framing is received by investors may do more to move the stock post-earnings than the headline numbers and outlook itself.”

Sometimes being a good storyteller is the most important skill a CEO can have.—LB