Equity Insights- NVIDIA - Navigating Volatility with Intelligent Data and Analysis

Can Nvidia live up to the hype?

With one of the most critical set of earnings of this reporting season set to be released next week, we believe it is worth taking a look at what is currently being priced in.

Expectations have steadily moved higher over the course of the last 4 weeks, with EPS expectations being revised higher by 1% and revenue expectations being revised higher by 0.6%. As of this point of time, the expectations stand at 64.5 cents and $28.706 Billion respectively.

Based on the capex plans of the mega cap Tech names such as Microsoft, Google, Amazon &Meta (refer to the capex table below) we believe that the demand for GPUs continues to be robust and there is no real indication of this slowing down in the coming 6 months at this point of time.‍

However, stocks like Nvidia, derive much of their value from their future earnings expectations and that is where we expect the focus of the Street to be. When you are priced to perfection you need to deliver just that and any disappointment on future guidance would be good enough to overshadow a better-than-expected earnings print, this time around.

‍How to position:

While market vols have reverted from the spike seen a couple of weeks back, implied volatility on certain individual names continue to be elevated, especially for Nvidia.

A likely post earnings vol crash makes selling options attractive and different instruments can be used to accomplish different objectives, depending on current positioning.

Q3 expectations for Nvidia are currently at about $31.7billion, essentially a QoQ addition of another $3 billion in revenue, which is higher than the $2 billion in incremental revenue that was being priced in for the last 3 quarters. We believe that this would have easily been achievable in case there were no design related issues reported for the Blackwell, which was likely to contribute a significant amount of revenue in the back half of the year, as mentioned by Jensen Huang during the Q1 earnings call. What analysts would be looking to get further insights on, is how much of a delay has this design issue caused and what kind of revenue impact is it likely to have if at all any, given that such issues are quite common when introducing a new chip platform and usually do not cause a delay of more than 3-4 weeks (Nvidia has however issued no clarification regarding the potential delay in shipping Blackwell chips).

Capex Table :

Of this capex chalked out for datacenter investments, about 70-80% will go directly towards the purchase of GPUs and this is a market where Nvidia enjoys a market share of nearly 85%.