Should you buy Nvidia stock by Thursday?

The artificial intelligence (AI) boom will be put to another big test this week.

Nvidia (NVDA -0.06%)the chipmaker that became the standard-bearer for the generative AI revolution, is scheduled to report fourth-quarter earnings after hours on Wednesday, and there’s no doubt Wall Street will be watching from the sidelines with rapt attention.

After all, Nvidia is currently up nearly 400% since the start of 2023, and 46% this year alone after the launch of ChatGPT, as its hardware helped lead the way in the artificial intelligence space. Did. Nvidia recently passed Amazon and alphabet With a market capitalization of $1.8 trillion, it becomes the third most valuable U.S. company. microsoft and apple.

Nvidia has been at the forefront of the AI ​​boom, so it’s natural to speculate about its upcoming earnings report. Is it the right move to buy AI stocks before Q4 numbers are released? Let’s take a look at the evidence available to help you make the best decision.

Image source: Getty Images.

What to expect from Nvidia on Wednesday

Nvidia has seen extraordinary demand for GPUs, accelerators, and other chips suitable for running the kinds of AI models that power programs like ChatGPT, and Wall Street is struggling to meet the surge in demand for Nvidia products. I’m having a hard time.

The chip giant has easily exceeded Wall Street expectations and typically provides guidance well ahead of consensus. Wall Street expectations have been steadily increasing their valuation of NVIDIA in recent months.

For the fourth quarter, analysts expect sales to rise 237% to $20.4 billion and earnings per share to jump from $0.88 to $4.56.

These are high expectations, but not unreasonable expectations. His Nvidia revenue in the third quarter rose 206% to his $18.1 billion, and he expects fourth-quarter revenue to be around $20 billion.

Nvidia’s partners beat estimates by a wide margin

There is also evidence that the AI ​​boom is still accelerating, as reported by some of Nvidia’s partners.

arm (arm -4.00%) The stock soared after its recent earnings report showed accelerating revenue growth and touted a surge in AI-related demand. Arm licenses its CPU technology to his Nvidia, and Arm’s designs include the Grace Hopper H200 superchip, a more advanced version of the hugely popular H100 GPU that is at the center of the AI ​​boom. has been adopted in his Nvidia products.

moreover, super microcomputer (SMCI -19.99%) Since the company announced preliminary results in January that far exceeded expectations, the stock price has gone parabolic and sales doubled in the quarter. The company makes high-density server and storage solutions with high demand for AI capabilities, which run on his Nvidia GPUs. Supermicro stock is up 182% since the beginning of the year and nearly 900% since the start of 2023.

Arm, Supermicro, and Nvidia are all benefiting from the same trends, so any of these earnings reports should bode well for Nvidia’s updates.

Should you buy Nvidia now or wait until after earnings?

When purchasing stocks, it’s best to plan to hold them for at least a year. This provides tax benefits and the benefit of smoothing out the volatility inherent in the stock market.

As Benjamin Graham said, “In the short term the market is a voting machine, but in the long term it is a weighing machine.” It is easier to accurately determine the “weight” of a stock than its popularity. Yes, it favors long-term investors.

It’s impossible to know for sure whether Nvidia’s financial results will go up or down. But if you buy a stock, you believe it has a sustainable competitive advantage that allows it to continue dominating the GPU and AI chip markets and use that as leverage to enter new markets such as PCs. You should buy it. , recently announced plans to do just that.

There’s no shortage of excitement about Nvidia and other stocks with AI exposure. Several small-cap stocks recently jumped after Nvidia revealed it had acquired small stakes in these companies.

However, the recent surges in Arm and Supermicro indicate that the market still appears to be underestimating the potential of AI hardware stocks like Nvidia. If I had to guess, I’d say stock prices are more likely to rise than fall on earnings announcements, and the options market is betting on that.

Beyond revenue, Nvidia’s competitive advantage appears to be strengthening, and demand for AI applications is likely to grow in the coming years, which should drive demand for the company’s chips.

Even after its impressive rally, this stock looks like a smart long-term buy for its earnings.