Advisors weigh in on Nvidia's earnings, outlook

Okay financial advisors, the all-important second quarter results you’ve all been waiting for are finally out. AI-powering chipmaker Nvidia (Ticker: NVDA) handily beat analyst estimates on the top and bottom lines. It also offered stronger than expected guidance for the third quarter.

So now what’s the plan?

Nvidia reported second quarter revenue 15 percent higher than the previous quarter and up 122 percent from a year ago, and at $30 billion it surpassed the $28.9 billion that analysts were expecting. Earnings of 68 cents per share also beat the expected 64 cents. Gross margin came in at 75.1 percent, down from 78.1 percent in the first quarter, but still extraordinary by any standards.

All that said, investor concerns about the company’s third quarter revenue forecast sent the stock down post release. Nvidia announced Q3 sales estimates of $32.5 billion (plus or minus 2 percent), which is above the $31.9 billion average analysts penciled in for the company, but below Wall Street’s highest expectation of $37.9 billion.

Despite the market’s early disappointment with the company’s performance, or at least its forecast, Robert Pearl, co-founder and wealth advisor at G&P Financial, continues to see Nvidia as a “great long-time investment,” and is not selling the news.

“I believe that AI will have a lot of demand over the next decade as we will be globally facing a significant worker shortage,” said Pearl. “My hypothesis is that Nvidia will struggle to get back to recent highs until after the election, but post-election should regain its position as a market leader.” 

As for Nvidia’s impact on the greater market, Pearl points out that out of the last 7 quarterly earnings for the company, only 3 of the 7 times did the S&P 500 follow the move the direction of the chipmaker post earnings release. Nvidia currently makes up a very outsized 6.2 percent of the benchmark index.

Added Pearl: “Nothing in the earnings call concerned me macro economically and nothing was concerning regarding NVDAs high profile customers.”

Tom Graff, chief investment officer at Facet, sees the market’s initial reaction as a good example of how there are official expectations from Wall Street and then there are “trader expectations.”

“Clearly traders were disappointed that forward revenue guidance wasn't even stronger. Specifically, I think people wanted more clarity about Blackwell production snags than the company gave during the call,” said Graff.

In terms of the impact on the broader market, Graff says this earnings season has demanded an adjustment in expectations, especially around capital expenditure costs. But once that adjustment is made, stocks should keep rising as long as basic demand remains strong.

“That does not guarantee that tech stocks or AI-related stocks will keep outperforming. That question really does come down to actual results versus expectations. This is why Facet portfolios own more than just AI plays. But I certainly would want to own these companies going forward as part of my portfolio,” said Graff.

Elsewhere, Marino Patrk, principal at Hudson Value Partners, believes new advances in energy and processing efficiency mean Nvidia chips will continue to be AI's backbone. 

“In my book it's still a beat and raise quarter,” said Patrk. “While they will face margin and market share pressures, that day isn't here yet. So long as Alphabet, Microsoft, and Meta think it is more dangerous to underspend than overspend on AI, Nvidia is a comfortable hold for me."

Finally, Albert Pinedo, wealth manager at Savvy Advisors, remains undeterred despite market's initial reaction to the stock.

“The data center business is thriving due to high demand for generative AI and language models using GPUs,” said Pinedo. “Additionally, strong demand in Gaming and ProViz, along with new collaborations in the autonomous vehicle industry, positions NVIDIA for long-term growth. While guidance may slow and valuations are high, the company is poised to outperform its peers in the coming years."