Nvidia to have final say on strong earnings season for Big Tech

Nvidia shares have soared as its biggest customers pledge to keep spending heavily on equipment for artificial intelligence computing and as new buyers emerge from governments in the Middle East. The stock remains down 9% from its January peak.

The focus in the firm’s first-quarter earnings report will be the supply of computer systems based on its new Blackwell chips, which faced manufacturing hiccups that hampered sales in the fourth quarter amid heavy demand. The Santa Clara, California-based company is projected to deliver around $19 billion in net income on revenue of $43 billion in the first quarter, up 31% and 66%, respectively, from the same period a year ago.

Another thing investors will be watching closely is profit margins. In February, Nvidia said higher costs associated with the ramp up of Blackwell production would weigh on gross margins in the first quarter. Gross margins should return to the “mid-70s” by the end of the year from a projection of roughly 71% in the first quarter, Chief Financial Officer Colette Kress said at the time.

“We did see a slowdown in margins last quarter and if we see them shrink again, that could bring the stock down,” said Andrew Rocco, a stock strategist at Zacks Investment Research. “I don’t think we’ll see a huge surprise with this report one way or the other but there is a risk with the outlook.”

The earnings report has the potential to be complicated owing to US export restrictions of advanced semiconductors to China aimed at slowing the country’s technological progress. Last month, Nvidia wrote off about $5.5 billion in inventory of chips designed explicitly to comply with previous US curbs. Chief Executive Officer Jensen Huang has criticized the US policies, which he said will cede a market that could be worth $50 billion in 2026 to Chinese rivals.

Wall Street estimates appear to vary widely on the impact of the restrictions, creating the potential for a “messy” quarter, Morgan Stanley analysts led by Joseph Moore wrote in a research note published Tuesday.

Nvidia and other technology giants were among the biggest decliners in last month’s rout that sent the S&P 500 to the brink of a bear market. Many of the stocks have recouped much of the losses after Trump temporarily paused the stiffest levies and earnings showed demand remains intact. The Nasdaq 100 Index is outperforming the S&P 500 since the reporting cycle kicked off in mid-April.

This earnings season has shown that the biggest buyers of AI computing gear plan to keep plowing money into capital spending, a boon for Nvidia and other makers of computing hardware. Microsoft and Alphabet pledged to spend even more next year, while Meta raised its forecast for capital expenditures in 2025.

“It is remarkable how much we’ve almost come full circle in a few weeks,” said Rob Almeida, global investment strategist at MFS Investment Management. “The fact that hyperscalers still think they can’t afford to not invest is a pretty strong signal for their intentions over the next four quarters.”

Despite the rebound in Nvidia shares, the stock’s valuation relative to anticipated earnings remains at a discount. Nvidia is priced at 29 times profits projected over the next 12 months, compared with a five-year average of 40, according to data compiled by Bloomberg. The Nasdaq 100 trades around 26 times projected profits.

For Krishna Chintalapalli, a portfolio manager at Parnassus Investments, the attraction to Nvidia as the biggest beneficiary of AI spending remains strong.

“I haven’t seen anything in the past three months that would suggest the story has dramatically changed,” Chintalapalli said. “While China is a factor, the Middle East deals suggest broad-based demand for Nvidia chips beyond the US and China.”