NVIDIA's Earnings Report Tonight: How Strong Must They Be to Reverse AI Bubble Panic?

Under competitive pressure, NVIDIA’s performance is the biggest test facing the current artificial intelligence market.

NVIDIA’s highly anticipated earnings report is set to be released after the U.S. market closes on Wednesday (early Thursday Beijing time). This is not only a performance report for the chip manufacturer but also a key barometer for the U.S. stock market to assess whether the AI boom is at risk of a bubble burst.

Ahead of the earnings release, the market is shrouded in fears of AI disruption effects and doubts about the sustainability of massive investments. Investors are uneasy about tech giants like Alphabet and Microsoft spending hundreds of billions of dollars on AI infrastructure, while also fleeing sectors threatened by AI, such as certain software industries, leading to significant sell-offs in related sectors. Analysts believe that NVIDIA’s results may be impressive, but they might not be enough to reverse investor concerns about an AI bubble.

According to Bloomberg options market pricing, traders expect NVIDIA’s stock to fluctuate about 5% up or down the day after the earnings are announced. Although Wall Street generally expects the company to deliver strong results, NVIDIA’s stock has only risen 3.4% since early Q4, and there is considerable uncertainty whether its excellent data can translate into sustained stock price growth.

To reverse market fears of an AI bubble, NVIDIA needs not only to significantly beat expectations in revenue and profit but also to provide impeccable proof in cash flow realization, profit margins, and future order guidance to reassure investors nervous about debt-driven spending by tech giants.

High Growth Expectations and Guidance Reassessment

Wall Street remains highly optimistic about NVIDIA’s short-term performance. According to Bloomberg-compiled analyst estimates, for the fiscal Q4 ending January 31, NVIDIA’s revenue is expected to surge 68% to $65.9 billion, with adjusted EPS expected to jump 72% to $1.53. Reuters data shows that analysts forecast its first-quarter revenue will further grow 64.4% to $72.46 billion.

However, surpassing expectations alone may no longer suffice. Ivana Delevska, Chief Investment Officer at Spear Invest, pointed out that this earnings report is especially critical because there is widespread concern over whether AI spending is in a bubble. Demonstrating that profitability has not truly slowed down will be key. Additionally, investors will be closely watching updates on NVIDIA’s backlog of orders. Previously, executives hinted at discussions with clients about data center orders for next year, and the market expects NVIDIA to update the backlog figure of $500 billion first announced in October last year.

To strengthen its position in the inference market, Reuters reports that NVIDIA last year signed a deal worth about $20 billion to license chip technology from Groq. Meanwhile, CEO Jensen Huang’s comments during the earnings call will be closely monitored; earlier this month, he dismissed concerns about disruption causing software stock sell-offs as “the most illogical thing in the world.”

Profit Margin Risks and Cash Flow Concerns

Amid dazzling revenue growth, details like gross margin and cash flow are becoming new focal points for investors. According to Bloomberg and Reuters, affected by high production costs of Blackwell chips, NVIDIA’s expected adjusted gross margin for Q4 is 75%, the highest in over a year, and is expected to remain near this level for the current fiscal year.

Melissa Otto from Visible Alpha noted that profit margins are a potential risk factor, with the market paying close attention to Q1 gross margin performance and full-year guidance. Investors need reassurance that, despite rising storage chip prices and other input costs, this high profitability can be sustained.

Moreover, Swissquote Bank analysts highlight that investors are increasingly concerned about the gap between booked revenue and actual cash received. In an environment of rising leverage and massive AI capital expenditures, investors want to see not just order contracts but actual cash inflows. Since nearly 50% of NVIDIA’s customer base consists of large cloud computing companies, their spending willingness and financial health directly impact NVIDIA’s cash flow quality.

Intensified Competition and Supply Chain Bottlenecks

Although NVIDIA remains the biggest winner in the AI boom, its long-term dominance faces erosion from client in-house chip development and competitors. Reuters reports that Alphabet’s Google has signed agreements to supply its internally developed TPU chips to Anthropic and is negotiating chip supply deals with NVIDIA’s major customer Meta. Additionally, Meta announced plans to purchase large quantities of AMD chips to deploy up to 6 gigawatts of computing capacity.

Beyond demand-side shifts, supply constraints could also pose challenges. Jay Goldberg of Seaport Research Partners believes that considering TSMC’s 3nm fabrication capacity limitations, it will be difficult for NVIDIA to achieve significant outperformance in shipment speed.

In overseas markets, China remains a key focus. Although NVIDIA previously stated that its Q4 revenue would not include data center sales from China, investors are eager for any updates on the company’s sales progress in the Chinese market.

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