You might assume that the final week of August would be the quietest of the summer on Wall Street, with traders heading to the beach for some last-minute relaxation before Labor Day. However, there’s a major market event on the horizon that investors won’t want to overlook: Nvidia’s earnings report.
One money manager even suggested that the chip giant’s results could eclipse Federal Reserve Chair Jerome Powell’s much-anticipated remarks on inflation, the economy, and interest rates during his Jackson Hole speech on Friday.
“Step aside, Fed—this week is all about Nvidia’s earnings on August 28th. Waiting for it is the hardest part,” quipped Gina Bolvin, president of Bolvin Wealth Management Group, playfully nodding to the late Tom Petty.
Nvidia will need to deliver another stellar quarter and offer optimistic guidance to justify the increasingly expensive valuations of tech stocks.
The Roundhill Magnificent Seven exchange-traded fund (MAGS), which holds only Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla, is now trading at roughly 36 times earnings estimates for 2024, up from a P/E of 32 after the market dip on August 5th.
This valuation is notably higher than both the broader market and the tech sector as a whole. The S&P 500 is trading at about 23 times this year’s earnings estimates, while the Invesco QQQ Trust, which tracks the Nasdaq 100, has a P/E of 30. The Magnificent Seven heavily influence these indexes, skewing the multiples upward due to their market-cap dominance.
It goes without saying that Nvidia is under immense pressure to validate the AI hype and justify the lofty valuations of Big Tech. Currently, Nvidia is trading at about 47 times forward earnings estimates, with only Tesla among the Magnificent Seven sporting a higher valuation—its P/E is nearing 100.
Yet Nvidia might just rise to the occasion.
The company’s earnings and revenue are expected to more than double from last year. It’s worth recalling that Nvidia also faced high expectations in May during its last earnings report. The company delivered a stellar performance, beating analysts’ forecasts by 7% and fueling another significant rally in tech stocks.
Given that other major tech companies have already provided optimistic projections for AI-related products and services, this bodes well for Nvidia, which counts Microsoft, Amazon, Alphabet, and Meta among its largest customers.
“Each of these companies highlighted strong demand and investment in AI-related products that should bolster tech earnings going forward,” said Raymond James chief investment officer Larry Adam in a report.
“This earnings strength is why we favor megacap tech and would use any weakness as a buying opportunity,” Adam added.
Nvidia’s chips are also in high demand beyond the tech sector, particularly in the automotive industry.
“Nvidia continues to experience strong demand from key customers across all of its processors and is struggling to keep up with that demand,” noted Ivan Feinseth, chief market strategist at Tigress Financial Intelligence. Feinseth also pointed out that “significant upside exists from current levels” for Nvidia.
Wall Street shares this optimism. Nearly all analysts covering the stock rate it as a Buy, with the consensus price target nearly 10% above current levels. Nvidia shares were up 1.3% to $125.40 in premarket trading on Friday.
Indeed, Nvidia exemplifies a crowded trade, with most agreeing that the stock should keep climbing. But time and again, Nvidia has rewarded its investors and shareholders of other Big Tech giants riding its wave of momentum.
