WASHINGTON, DC – SEPTEMBER 27: NVIDIA founder, President and CEO Jensen Huang speaks about the future of artificial intelligence and its effect on energy consumption and production at the Bipartisan Policy Center on September 27, 2024 in Washington, DC. Huang said that machine learning uses a large amount of energy but that artificial intelligence will save energy in the long run due to it’s efficient computing abilities. Founded in California in 1993, NVIDIA is the world’s most valuable publicly traded company, with a market capitalization of over $3.3 trillion. (Photo by Chip Somodevilla/Getty Images)
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Nvidia is set to report third quarter earnings after the market closes Wednesday, as I wrote last week in my Forbes column, with investors expecting revenue and adjusted earnings per share to grow 56% and 59%, respectively.
The AI-chip designer’s stock is down 15% from its Oct. 29 peak as some big-name investors – such as Softbank’s Masayoshi Son and Thiel Macro’s Peter Thiel – unloaded their $NVDA, according to Reuters, and analysts are wringing their hands.
Nvidia and OpenAI are the two most important companies in the generative AI stack, which includes chipmakers, cloud-services providers, data-center hardware purveyors, foundation-model tool makers, and AI application-services providers, as I wrote in my book Brain Rush.
Based on a correlation analysis of stocks in my generative AI stock index with Nvidia since its May 2023 earnings report, here are some questions and quick answers:
Which Stocks Are likely To Move Along With $NVDA After Its Earnings Announcement?
Vertiv – a provider of cooling and power infrastructure for Nvidia’s Blackwell and Hopper GPUs – is highly correlated with Nvidia earnings news, noted Zacks Investment Research; Super Micro Computer. Shares of the server rack integration provider rise or fall depending on Nvidia’s forward guidance; and CoreWeave. This AI cloud services provider’s stock often moves with Nvidia stock – trading as a leveraged bet on AI demand.
How $NVDA And These Stocks Will Move Under Three Scenarios
Wall Street consensus expects Nvidia to report revenue of approximately $55 billion and EPS of $1.26, noted Saxo Bank. The options market is pricing in a move of about 7.7%, according to the Economic Times.
If Nvidia beats and raises (about 50% probability) — reporting more than $56 billion in revenue, raises guidance significantly, and confirms accelerated Blackwell shipments, noted the Economic Times – $NVDA could rise to about $200 a share, Vertiv and SuperMicro shares could go up between 6% and 10%, and CoreWeave shares may pop 10% to 15%.If Nvidia beats and maintains guidance (30%) – with a forecast as expected and declining gross margins due to new product costs – $NVDA could drop 4% to 8%, Vertiv and SuperMicro shares could fall 5% to 8%, and CoreWeave shares may lose 8% to 12% of their value.If Nvidia misses (20%) – due to lower revenue and lower guidance on supply chain constraints, $NVDA could fall between 12% and 18% while Vertiv and SuperMicro shares may fall between 10% and 15%.
Which AI stocks Are Least Correlated With Nvidia?
Enterprise software or cloud names – such as Snowflake, Datadog, and ServiceNow — and the parent companies of cloud services providers including Microsoft, Alphabet, and Meta did not consistently react in unison with Nvidia’s earnings.
What Are Wall Street Analysts Saying?
Many on Wall Street are pessimistic about Nvidia stock. The company’s circular AI deals, about which I wrote in an October Forbes post, is souring sentiment. “Sentiment has turned more negative in the last few weeks, with the circular AI deals being treated with increasing caution as the conversation around a potential bubble has gathered pace,” noted Deutsche Bank’s Jim Reid, according to SeekingAlpha.
Despite Nvidia committing up to $10 billion to Anthropic and up to $5 billion to Microsoft with Anthropic set to buy $30 billion in Azure compute, both stocks declined on the day, Reid added.
Nvidia’s bets – which total roughly $53 billion and amount to 170 deals between 2020 and 2025, according to Yahoo! Finance – are confusing investors. “To what degree is Nvidia investing versus buying demand or subsidizing demand?” asked Seaport analyst Jay Goldberg who holds a Sell rating on Nvidia stock, noted Yahoo! Finance.
When Nvidia CEO Jensen Huang was asked on the Bg2 podcast to respond to analyst critiques that its investment in OpenAI could artificially inflate AI demand, he said that Nvidia’s investment is separate from revenue it could see from the AI developer.
Nvidia is bullish about its investment in OpenAI. The ChatGPT purveyor “is likely going to be the next multitrillion-dollar hyperscale company, and who doesn’t want to be an investor in that?” Huang said during a Bg2 podcast.
“My only regret is that they invited us to invest early on, and we were so poor that we didn’t invest when I should have given them all my money. We’ve made some great investments,” he said, using Nvidia’s investments in xAI and CoreWeave as examples.
Many analysts agree with Huang that Nvidia’s big investments in AI, such as its deal with OpenAI, are smart plays in boosting the AI ecosystem.
Not all analysts are bearish on Nvidia’s bets. “I could argue that there’s no better use of Nvidia’s cash right now,” Bernstein analyst Stacy Rasgon told Yahoo! Finance.
What Should Investors Do?
The companies in the AI stack vary in how dependent they are on Nvidia. Below are four tiers of companies ranked from most to least dependent and how much these stocks may move based on Nvidia’s report:
Tier 1 – Highest Leverage (estimated ±15% to ±30% moves): Super Micro Computer and CoreWeave get most or all revenue from GPU infrastructure directly or indirectly. Tier 2 – High Leverage (±8% to ±15%): AMD, ASML, Vertiv, Arista Networks, Datadog, and MongoDB are companies in my generative AI stock index with the strongest correlations with business dependencies on Nvidia but more diversified revenue streams.Tier 3 – Moderate Leverage (±4% to ±8%): TSMC, Dell, ServiceNow, and Adobe are established businesses with meaningful AI exposure but substantial non-AI revenue sources.Tier 4 – Low Leverage (±2% to ±5%): Microsoft, Google, Meta, Amazon, Accenture, and Gartner are large diversified companies where AI is an important growth driver but not critical to their survival.
If the pessimists are right, Microsoft, Google, Meta, and Amazon might be a good place to invest.
