Prediction: Nvidia Will Crush Wall Street Expectations on Aug. 28 -- but There's a Catch for the AI Stock | The Motley Fool (2024)

Nvidia (NVDA 1.51%) has been 2024's most influential stock. Rising artificial intelligence (AI) demand spurred enormous sales and earnings growth for the company, and the business momentum translated to incredible valuation gains.

The processing leader's share price is up 161% across this year's trading alone, and its incredible performance has been a bullish catalyst for the market at large and other individual players in the AI space. Now, Nvidia stock is on the verge of its next big test.

After the market closes on Wednesday, Aug. 28, the company will publish results for the second quarter of its 2025 fiscal year (which ended July 28). Management will also host a conference call to give investors further insight into the business and its outlook.

The earnings release will likely be one of this year's most important stock market events, and anticipation on Wall Street is running high. There's plenty of speculation on whether Nvidia will beat earnings expectations, and I'm predicting that the AI giant will comfortably beat most targets. But buckle up, because this one could get wild.

Nvidia looks poised to crush sales and earnings targets

In its fiscal 2025 first quarter update, Nvidia management guided for roughly $28 billion in sales in the second quarter. If the company hits that target, it would mean delivering annual sales growth of 107%. Management also expects Nvidia's gross margin to grow to 74.8%. Those numbers are nothing to sneeze at.

Wall Street is even more optimistic, with the average analyst estimate calling for the AI frontrunner to deliver sales of $28.6 billion in the period. Thus far, the company has been building an impressive streak of performance beats. Take a look at the table below, which tracks Nvidia's revenue against Wall Street's expectations over the company's last four reported quarters.

Data sources: Nvidia and CNBC.

With the company posting fantastic margins, sales beats have also meant that the company's earnings have crushed Wall Street's expectations. Across the last year, the company's quarterly non-GAAP (adjusted) earnings beat the midpoint Wall Street target by an average of 17.3%.

Tech industry capex is flashing signals

There's a very good chance that Nvidia will manage to beat its own targets and the average Wall Street estimates with its upcoming quarterly report. Here's why.

With its last quarterly report, Microsoft announced capital expenditures (capex) of $19 billion -- with nearly all of the spending going to improving the company's cloud and AI infrastructure. Capex was up 35% from the previous quarter, and management also announced that spending is poised to continue climbing over the next year. Microsoft is widely believed to be Nvidia's largest customer, and increased spending on AI infrastructure is a clear bullish indicator.

The software giant wasn't the only one to deliver encouraging capex news recently. Meta Platforms, another big Nvidia customer, also raised its capital-spending guidance range with the second-quarter results it published at the end of last month.

In general, the sentiment among many leading tech companies appears to be that it's better to invest heavily in artificial intelligence right now than to risk being left behind or playing catch-up with competitors. Along with promising capex data from technology giants, that bodes well for Nvidia -- and I think the company will beat top- and bottom-line expectations in Q2.

But there's a catch.

Nvidia stock needs more than strong Q2 results for a post-earnings surge

While the average Wall Street target calls for Nvidia to report revenue of $28.6 billion for the second quarter, some analysts have set the target significantly higher. For example, HSBC expects the business to report $30 billion in revenue for the period.

Beating the average Wall Street target is often enough to trigger bullish valuation momentum for a company, but that isn't always the case. Hot stocks in particular are often held to higher standards -- with investors looking for the business to deliver results that match or exceed elevated expectations. It's also worth noting that Wall Street analysts have gotten more accurate in modeling the company's performance over the last year of reporting, with Nvidia's quarterly sales beat going from 20.4% in last year's second quarter to 5.6% in this year's first quarter.

Even if Nvidia manages to far exceed the average Wall Street targets, there are other catalysts that could lead to volatile trading after earnings. Investors will also have the company's guidance for the current quarter and future roadmap under the microscope, and reports have emerged that the AI leader may be delaying the release of its next-generation Blackwell processors. Depending on what Blackwell news Nvidia has to share, the stock could see big moves in either direction.

So even with signs that the AI luminary will deliver strong Q2 results, investors should understand the stage could be set for post-earnings valuation volatility. Rather than trying to time short-term buying and selling moves around what the company's share price will do soon after earnings, it makes more sense to approach an investment in Nvidia with the company's long-term outlook in mind. Things generally continue to look quite promising on that front.