Investors are waiting with bated breath for May 22nd, when the world’s top AI hardware company, Nvidia, will release its fiscal Q1 2024 earnings after the markets close. The report will be one of the most anticipated of all time as much of the stock market is hinging on the success of AI right now. While the event is still a couple of weeks away, optimism is building ahead of the report as Big Tech companies are scaling up their artificial intelligence (AI) spending, whose key beneficiary could be Nvidia.

Nvidia has been milking global spending towards generative AI (GenAI) like no other company. Analysts expect the company’s revenues in the current fiscal year to rise 84% YoY to over $112 billion, which for context, is more than ten times what the company posted in its fiscal year 2020.

Not many companies of Nvidia’s size have reported such stellar growth with revenues rising 10x in a span of five years. The euphoria looks far from over with analysts modeling revenues of $137 billion in the next fiscal year.

Nvidia Will Release Q1 Earnings on May 22

Analysts expect Nvidia’s revenues to rise 239% YoY to $24.9 billion in the fiscal first quarter of 2025 that ended April 28. The expectations are in line with Nvidia’s midpoint revenue guidance of $24 billion.

Nvidia’s net profit is expected to rise five-fold to $13.7 billion in the quarter as the company reaps the reward from the massive demand and high prices of its AI chips.

Big Tech Companies Have Scaled Up Their AI Investments

Barring Nvidia, all the other constituents of “Magnificent 7” have released their quarterly earnings with higher AI spending being a common theme during the earnings calls. Tesla, whose CEO Elon Musk believes that the electric vehicle maker is more of an AI play than an automotive company, talked about its AI investments during the Q1 earnings call last month.

Referring to Nvidia’s H100 graphics processing unit (GPU) which can cost more than $40,000, Musk said, “Roughly 35,000 H100s are active, and we expect that to be probably 85,000 or thereabouts by the end of this year.”

He even said that GPU is the “wrong” term for these and we need new terminology to describe the high-power chips. This is because they are no longer predominantly used to generate graphics in video games. They are now essential tools used to train the AI models that are pushing the US economy forward. Tesla also uses these chips but for its autonomous driving technology which is critical for the company, justifying its over $550 billion market cap.

Alphabet has Stepped Up Its Game in AI

Big Tech companies – which have been on a cost-cutting spree for the last many quarters and have either shelved or postponed some investments – have their purse strings wide open for AI-related investments.

Google-parent Alphabet, for instance, reported a capex of $12 billion in the first quarter of 2024. The spending was double that of the corresponding quarter last year.

Commenting on the Q1 capex, Alphabet’s CFO Ruth Porat said, the spending was “driven overwhelmingly by investment in our technical infrastructure with the largest component for servers followed by data centers.”

Porat added, “The significant year-on-year growth in capex in recent quarters reflects our confidence in the opportunities offered by AI across our business.”

The company expects the capex in coming quarters this year to be similar to or higher than the Q1 capex which could keep Nvidia’s cash registers ringing.

Google was seen as playing catchup with ChatGPT until about a few months back. Its chatbot Bard had a disastrous debut last year after it provided a factually incorrect answer to “What new discoveries from the James Webb Space Telescope can I tell my 9 year old about?” Even the rebranded Gemini has been far from perfect. It often returned bizarre racist or historically inaccurate answers and even refused to generate white people.

However, the company made several key announcements at the Google Cloud Next 2024 event in April. It also allayed fears of slacking in AI efforts, and markets rewarded the stock after its better-than-expected Q1 earnings by catapulting it into the ranks of $2 trillion companies.

Nvidia to benefit from Higher Spending on AI

Microsoft, which has invested billions of dollars in ChatGPT’s parent company OpenAI, said that its capex in the fiscal third quarter of 2024 (that ended on March 31, 2024) rose 80% YoY to $14 billion. The company expects its capex to swell to $50 billion in the next fiscal year as it ramps up AI spending.

AI has become a buzzword among leading companies and is increasingly featuring in earnings calls. Data compiled by FactSet showed that 179 of the 500 S&P 500 companies used the term “AI” in their earnings calls between December 15, 2023 and March 14, 2024.

The figure is more than three times the ten-year average and the second highest since 2014. The highest (181) was in Q2 2023 when advanced generative AI changed the tech world forever.

While we still don’t have ready data about the Q1 earnings calls, the boom looks far from over, as reflected in Nvidia’s stock price. While the Jensen Huang-led company has come off its 2024 highs, it is still up almost 80% for the year making it the second-best-performing S&P 500 stock after Super Micro Computers.

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Could Nvidia Stock Rally After Q1 Earnings?

Nvidia tends to be extremely volatile – both on the upside and downside – after its earnings. After the previous earnings call in February, it rose 16% and added $273 billion to its market cap. It was a record for any company and surpassed the previous record set by Meta Platforms a few days back. After its fiscal Q4 earnings call, Nvidia joined the ranks of $2 trillion companies – it became a $1 trillion in May 2023 after releasing its fiscal Q1 2024 earnings report.

However, at times, Nvidia stock has fallen despite the earnings beat as the market expects much more than an “earnings beat” from the company after the stellar price action.

Meanwhile, while Nvidia is present in many other industries including gaming, for now, its fortunes are closely interwound with AI spending. Judging by the comments made by leading tech companies, AI capex is far from over.

Nvidia is having a literal cakewalk as other chip companies haven’t been able to come up with competing (and compelling) AI chips. For instance, while Intel has unveiled its Gaudi 3 AI chip, the once formidable chipmaker expects its sales to be only about $500 million in 2024 which is a tiny fraction of Nvidia’s sales. AMD expects to do a bit better and forecast that sales of its MI300 AI chip will be around $4 billion this year.

All said, for now, there looks no stopping for Nvidia stock as the demand for its AI chips continues to outstrip supply, and companies across the world are scrambling to get their hands on its best-selling chips.