The 'Next Important Test for AI Bulls' Happens This Week With Nvidia's Earnings

Nvidia's upcoming earnings report is set to be a crucial test for investors bullish on artificial intelligence (AI) stocks. The company, a leading provider of graphics processing units (GPUs) used in AI applications, is expected to report earnings on February 26, 2025. Analysts anticipate EPS of $0.85 on $38.15 billion in revenue, reflecting high expectations for its AI GPU segment.



Nvidia's AI GPU segment has been a significant driver of the company's growth. In the fiscal Q3 2022 ended 10/31/21, Nvidia reported a 50.30% year/year change in revenue, with a net income of $2.46 billion, an 84.43% increase from the previous year. The company's operating income also saw a significant increase of 91.06% year/year. Nvidia's AI GPU segment is expected to continue this strong performance in the upcoming quarter, with analysts expecting EPS of $0.85 on $38.15 billion in revenue.



Several key factors are driving Nvidia's growth in the AI market and influencing future earnings:

1. Rapid adoption of AI technologies: The global AI market is expected to grow at a CAGR of 19.20% from 2025 to 2034, reaching USD 3,680.47 billion by 2034. This growth is driven by the increasing adoption of AI technologies across various industries, such as automotive, healthcare, banking & finance, manufacturing, food and beverages, logistics, and retail. Nvidia's AI GPU segment is well-positioned to benefit from this growth.
2. Increasing demand for AI-powered chatbots: The introduction of AI-powered chatbots like ChatGPT has led to a surge in demand for AI technologies. In response, hyper scalers have been introducing their own AI chatbots to maintain their dominant position in the AI market. This increased demand for AI technologies is likely to drive Nvidia's earnings, as its GPUs are used in developing and training these AI models.
3. Growing partnerships and collaborations: AI companies are continuously engaging in relevant partnerships and collaborations to achieve advancements in AI technology. For instance, Ericsson Canada partnered with universities based in Montreal to improve 5G sustainability using AI. These partnerships and collaborations can lead to technological excellence and help Nvidia expand its global reach, enhance marketing strategies, and gain technological expertise. This, in turn, can drive Nvidia's earnings.
4. Expansion of generative AI: Generative AI is expected to continue its expansion across industries globally. According to a report presented by Bloomberg Intelligence (BI), the generative AI market is expected to grow exponentially to USD 1.3 trillion in the coming decade, achieving a USD 40 billion market size by 2022. Nvidia's GPUs are widely used in generative AI applications, such as image and text generation, which can drive its earnings.
5. Strong sales of networking parts: Nvidia's networking revenue, primarily its InfiniBand products, was over three times higher in the year-earlier period. This growth is driven by the increasing demand for high-performance computing (HPC) and AI applications, which require efficient and fast networking solutions. As Nvidia's networking parts are used in building clusters of tens of thousands of chips, this growth can significantly contribute to its earnings.
6. Growth in data center business: Nvidia's data center business, which includes AI GPU sales, is expected to see significant growth in the coming years. The company's next-generation AI GPU, called Blackwell, is expected to lead to more growth in this segment. As the demand for AI and HPC applications continues to grow, Nvidia's data center business is likely to drive its earnings.

Nvidia's AI GPU segment is dominant in the market, but there are potential threats and opportunities for the company in this space. One potential threat is the increasing competition in the AI GPU market. While Nvidia has been the market leader, other companies such as AMD and Intel have been developing their own AI GPUs to compete with Nvidia. Another potential threat is the regulatory environment, with stricter US export controls and President Trump's proposed tariffs potentially impacting Nvidia's supply chain and operations.

Despite these potential threats, there are also opportunities for Nvidia in the AI GPU segment. The growing demand for AI and machine learning applications is driving the need for more powerful and efficient GPUs. Nvidia's AI GPUs are well-positioned to meet this demand, as they offer high performance and energy efficiency compared to other GPUs on the market. Additionally, Nvidia's AI GPU segment is expected to continue to grow, with analysts projecting EPS growth of 52% for 2025 and 25% for 2026.

In conclusion, Nvidia's upcoming earnings report is a crucial test for investors bullish on AI stocks. The company's AI GPU segment has been a significant driver of its growth, and several key factors are likely to influence its future earnings positively. While there are potential threats from competition and regulatory uncertainty, there are also opportunities for Nvidia to continue to grow and maintain its dominance in the AI GPU market. Nvidia's AI GPUs offer high performance and energy efficiency, which positions the company well to meet the growing demand for AI and machine learning applications.