Nvidia Earnings Preview: Extremely Crowded Positioning, Extremely High Expectations

Ahead of today's Nvidia earnings, which according to many will be the most important number of Q3 earnings season because, as DB's Jim Reid reminds us, "Nvidia's Q1 earnings in May was probably the event that catapulted AI into the stratosphere in terms of being an important macro topic so the pace of their success will be a key driver in how rapidly AI infiltrates our daily lives", positioning is extremely high... so are expectations.

Below we excerpt several trading desk previews of what to expect, starting with UBS trader Ryan Cobb:

Nvidia Set Up And Positioning Ahead Of Earnings

Nvidia earnings are due Tuesday after the bell and the stock remains a favorite in tech and equities altogether, up 230% year to date. From my conversations, investors still skew very positive on the name as the story remains unchanged. It feels like buyside bogey higher here than sell side around $17 bn for quarter and $20 bn for guide. Stock has been working ahead of print (something that typically happened last 3-4 quarters as sell side analysts put out bullish previews) coupled with some positive news on incremental China revenues.

Flows have been slightly better for sale into the print which is a mix of long only and hedge fund trimming, as investors allocate money out the risk curve into the small and midcap space. The desk has seen a couple short tickets here and there surprisingly, but significant in terms of size.

Tim Arcuri, UBS semis analyst, is more bullish than most of the sell side on NVDA – he says it should solidly clear investor bogeys for guidance, but don't expect much new to sway the main stock debate on the direction of C2025. Tim adds that it will be important to hear commentary on H200 GPU, change/increase in purchase commitments or allocations, and commentary on China restrictions.

Key Metrics:

• Q3 Revs: UBS estimate $16.3 bn (above street) – Segment: UBS estimate Data Center $13 bn (in line with street) – (DC Compute $11.1 bn vs. Networking $1.88 bn), Gaming $2.56 bn(below street)
• Q3 GMs & Op Margin: UBS estimate GMs 72.6% and Op Margin 60.3%
• Q4 Revs Guide: UBS estimate $19.6 bn (well above street) – Segment: UBS estimate Data Center $16.2 bn (well above street) – (DC Compute $13.9 nn vs. Networking $2.26 bn), Gaming $2.61bn (below street)
• Q3 GMs & Op Margin Guide: UBS estimate GMs 73.3% & Op Margin 61.5%
• FY24 & FY25 Revs Guide: UBS estimate $56.6 bn FY24 & $97.4 bn FY25

Positioning came down from a scale of 10 in last print to 9 now, though Nvidia (NVDA) remains favorite in Tech & Equities altogether as the stock is up 240% year-to-day and up 20% month to date into print. From my conversations investors are still skewed very positive on the name as the story remains unchanged – though some taking profit in early fall as YTD winners lagged and stock didn’t quite work immediately on last print. That being said it feels like sentiment is better than last print, though isn’t as strong as the Goldilocks scenario into May Print that saw a +25% move.

From UBS we turn to JPMorgan, whose equity analyst Harlan Sur has an OW rating and a $600 target price (+18.3% upside from yesterday’s close... just in time for NVDA new all-time high). But instead of listening to the sellside which is usually an echo chamber of penguins where nobody dares to stray from the flock, we hand the mic to JPM's trading desk, starting with Stu Humphrey, in equity cash trading:

As we approach earnings, I have seen folks get a touch nervous that any upside surprise to numbers might be currently being priced in- hence we have been better sellers. And from current levels, it will take more than just a beat and raise to break $500. We can debate what we think 2025 growth will look like, but this quarter is not going to be able to tell us that. For this Q, folks feel there will be upside to prior guide, and they will have some sort of remedy for China demand. But who the heck knows what exit run rate will be for 2024? Have spoken to many a HF that are much more bearish on what the eventual normalization will look like after the big spurt of 2024. No idea if DC biz will be $40-50B biz or $80-100B biz. Reports after the bell 11/21.

BUYSIDE BOGEYS

• FQ3 revenue (guide $16.0b +/-2%): $17.5b (range $16.2-18.2b)
• FQ4 revenue guide (consensus $18b): $19.6b (range $18.5-21.6b)
• F25 (~C24) EPS (consensus ~$17.2): $20.7 (range $18.5-22.0)
• F26 (~C25) EPS (consensus ~$20.4): $23.2 (range $19.5-27.5)

And here is some color from JPM's TMT Sector head Jack Atherton:

The stock has been +21% MTD; NVDA’s earnings this week will be critical for Semis Outlook and near-term trajectory for MegaCap-Tech. If $500 remains a psychological ceiling for the stock, I am struggling to see mega cap tech making fresh highs short term.” Some additional color:

• Sentiment: Positive ... though not to the same extreme as FQ2 earnings with incremental fears over “peak” earnings risk, visibility into C25, competition from AMD/hyperscaler custom silicon, and the stock trading ~ATHs. The ~$100/sh move from $400 caught most off-guard and has come from a combo of restored AI sentiment, China clarity, and rates coming down from the highs.
• Positioning Score (1 = max short/UW, 10 = max long/OW): 9
• Buyside Bars: FQ3 revenue $17.5b (guide $16b +/-2%), FQ4 revenue guide $19.5-20.0b (St $18b). My buyside survey suggested investors are at ~$21 C24e EPS, and ~$23 C25e EPS.
• Debates for the Call: 1) Sustainability of DC growth in 2025, 2) Supply constraints, 3) China uncertainty and new GPU releases to evade export restrictions, and 4) Competitive threats.

We end with two previews from Goldman, first S&T specialist Michael Nocerino:

• NVDA reports post close on 11/21 and it will be the most important event of the week in regards to overall risk sentiment (even more focus than usual after Sam Altman’s dismissal from OpenAI).
• We currently have NVDA positioning at an 8 on 1 – 10 scale (1 max short and 10 max long).
• NVDA’s massive EPS/revenue outperformance vs. expectations over the last several quarters has created a VERY HIGH bar.
• On Tuesday the street is looking for EPS +478% to 3.35 with total revenue +170% to $16B (including Data Center revenue +232% to $12.73B).

And finally, here is Goldman TMT trader Peter Bartlett

• NVDA reports post-close… The desk has positioning as positioning as 8 out of 10 (down from a 10 out of 10 last quarter when a blow-out print only saw the stock trade up ~10 bps on a T+1 basis).
• While most investors do not expect the debate around CY2025 earnings power to be settled on this call (easily the #1 debate on the stock), investors are looking for another clean beat-and-raise set of results (as a benchmark for ‘magnitude’, Nvidia beat DC consensus revs by 10-25% the last two qtrs – this qtr, cons sits at ~$12.7bn for Oct DC revenues), coupled with i) color around China policy impacts (and ‘flexibility’), ii) customer demand patterns (Cloud vs Enterprise), iii) Networking momentum and supply constraints (GSe TSMC's CoWoS capacity to increase to >25k and 30-35k WPM by 2Q24 and 4Q24, respectively, from 10-12k WPM in 2Q23 and 15-16k WPM in 4Q23).

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