Nvidia's Earnings Preview: Balancing Chinese Market Uncertainty with Robust GPU Growth

Nvidia is set to release its latest financial report next Wednesday, with market participants eagerly awaiting the third-quarter guidance. Recent analysis from KeyBanc Capital Markets suggests that Nvidia might temporarily exclude direct revenue from China in its upcoming forecast. This is due to uncertainties surrounding the approval timeline for semiconductor export licenses amid U.S. restrictions.

KeyBanc analysts have noted that if the Chinese market contributions, particularly from H20 and RTX6000D (B40) chips, were included, Nvidia could potentially see an additional revenue boost of $20 billion to $30 billion. Presently, market consensus anticipates Nvidia's Q3 revenue to hit $45.92 billion, with earnings per share forecasted at $1.01.

Despite the short-term uncertainty from the Chinese market, Nvidia's fundamental business remains robust, underpinning its long-term growth trajectory. Reports emphasize that Nvidia's GPU supply and production capabilities are improving significantly, serving as a core lever for its earnings. GPU supply growth reached 40% in the fiscal quarter ending July, with a projected 20% increase by the end of October, spurred by the rollout of the B200 series. Further, the upcoming B300 chip, set to begin shipping in the October quarter, is expected to account for half of the output from the Blackwell series.

In addition to the GPU advancements, Nvidia is also witnessing improved production efficiency in server racks. ODM manufacturers of the GB200 racks have achieved a yield rate nearing 85%, with rack shipments expected to hit between 15,000 to 17,000 by year-end. Consequently, predictions for the annual GB200 rack shipments have been adjusted upwards, from 25,000 to 30,000 units.

Even amid the cautious market sentiment, Nvidia's outlook is buoyed by analysts' optimism. Institutional observers have revised their price targets upwards, indicating confidence in Nvidia’s sustained growth within the data center sector. Despite this positivity, Nvidia shares still experienced a drop of approximately 2.5% on Wednesday morning, reflecting a cautious market stance.