Nvidia Earnings Report: Testing the AI Market's Strength Amid Bubble Concerns

Nvidia is projected to announce over 56% revenue growth in its August-October fiscal quarter as it faces a pivotal earnings report on Wednesday.

Wall Street's enormous artificial intelligence investments will be tested when Nvidia releases its latest results, with investors eagerly seeking evidence that concerns about an AI bubble are unfounded.

Three years since ChatGPT's introduction, investor anxiety is mounting that AI valuations have outpaced actual business performance. Some industry executives have highlighted circular revenue arrangements between partners as a potential bubble indicator.

Several major investors have recently reduced their AI holdings, fueling speculation about an impending market correction. Tech billionaire Peter Thiel's hedge fund completely divested its Nvidia position in Q3, as did SoftBank's Masayoshi Son, though the latter redirected those proceeds into a substantial OpenAI investment.

Growing skepticism has pushed Nvidia's shares down 7.9% in November, despite a remarkable 1,200% appreciation over the past three years. The broader market has declined 2.5% this month.

"Each quarter, Nvidia's earnings become increasingly significant for clarifying AI's trajectory and investment levels," noted Brian Stutland, chief investment officer at Nvidia investor Equity Armor Investments.

Despite bubble concerns, demand for Nvidia's processors remains robust, with cloud giants like Microsoft investing billions in AI data center infrastructure.

Nvidia is expected to report a revenue increase exceeding 56% to $54.92 billion for its August-October fiscal quarter, according to LSEG data. This represents a slowdown from previous triple-digit growth as year-over-year comparisons become more challenging. Though the company has exceeded expectations for 12 consecutive quarters, the margin of outperformance has diminished.

CEO Jensen Huang recently stated that Nvidia has secured $500 billion in advanced chip orders through 2026.

"The traditional Wall Street saying 'one stock does not a market make' doesn't apply here," observed Neil Azous, portfolio manager of the Monopoly ETF holding Nvidia shares. "Nvidia has market-moving capability."

However, Nvidia's chips are central to "Big Short" investor Michael Burry's bearish position against the company. Burry, who recently closed his hedge fund, argued that major cloud providers were artificially enhancing earnings by extending the depreciation timeline for AI computing equipment, including Nvidia chips.

Nvidia's annual chip updates accelerate the perception of obsolescence for older models, despite a thriving resale market.

Currently, Nvidia faces challenges meeting chip demand. While contract manufacturer TSMC expands advanced packaging capacity to address production bottlenecks through 2026, Nvidia is simultaneously developing more sophisticated and larger systems that integrate graphics processors, CPUs, networking equipment, and various cooling solutions.

These developments, combined with the ongoing production ramp of flagship Blackwell chips and upcoming Rubin processors, have pressured profit margins. Analysts expect Nvidia to report an adjusted gross margin of 73.6% in Q3, down nearly 2 percentage points year-over-year. Net income likely increased 53% to $29.54 billion.

Investors are closely monitoring how major AI investments, including Nvidia's $100 billion commitment to OpenAI and $5 billion stake in Intel, will impact its financial position. As of July 27, Nvidia reported $11.64 billion in cash and equivalents.

China remains a significant concern. Under U.S. export restrictions, Nvidia cannot ship its most advanced chips to the Chinese market, and Huang has stated there are "no active discussions" about selling Blackwell products there, despite speculation about a potential modified version.

Nvidia excluded China from its advanced processor forecast in the previous quarter.