Nvidia Corporation (NVDA) has emerged as a dominant force in the technology sector, transcending its origins as a gaming chip manufacturer to become the linchpin of the artificial intelligence (AI) revolution.
The company’s extraordinary journey is marked by its ability to redefine the potential of its technology, propelling it to a staggering $3 trillion market capitalization.
As Nvidia approaches its fiscal Q2 earnings report, scheduled for August 28, all eyes are on whether the company will once again exceed Wall Street’s expectations.
Nvidia’s Evolution: From Gaming to AI Dominance
Founded in 1993, Nvidia initially gained recognition for its graphics processing units (GPUs) that revolutionized gaming. However, the company’s foresight to diversify its offerings has been pivotal in its ascent.
Nvidia recognized early on that the same GPUs that fueled immersive gaming experiences could be leveraged for AI and machine learning.
This strategic pivot has positioned Nvidia as the undisputed leader in AI chips, with a commanding 95% market share in AI and data center GPUs.This transition into AI has not only reshaped Nvidia’s identity but has also driven its stock to unprecedented heights.
The company’s success is reflected in its impressive market performance, where Nvidia shares have surged by 156.5% year-to-date, vastly outperforming the S&P 500 Index and the broader semiconductor sector represented by the iShares Semiconductor ETF (SOXX).
Goldman Sachs’ Bold Call: “Buy the Dip”
Goldman Sachs has recently made headlines with its bullish stance on Nvidia, particularly as the company prepares to report its earnings.
Scott Rubner, a strategist at Goldman Sachs, has called Nvidia the “most important stock” of the year and has advised investors to “buy the dip” ahead of what he anticipates will be a significant earnings report.
Rubner’s confidence in Nvidia’s potential to ignite a market-wide rally underscores the broader sentiment surrounding the stock.Moreover, Goldman Sachs analyst Toshiya Hari has reaffirmed a “Buy” rating on Nvidia, reiterating a price target of $135.
This optimistic outlook is shared by other major brokerage firms, as Nvidia continues to garner substantial bullish attention in the lead-up to its quarterly earnings.
Nvidia’s Q1 Earnings: A Precursor to Q2 Expectations
Nvidia’s performance in the first quarter of fiscal 2025 set the stage for the high expectations surrounding its upcoming earnings report.
The company reported a staggering 262% year-over-year increase in revenue, reaching $26 billion, and a 461.5% surge in non-GAAP earnings per share (EPS) to $0.61.
These figures not only surpassed Wall Street’s projections but also sent Nvidia’s stock soaring by 9.3% following the release.
The driving force behind Nvidia’s impressive Q1 results was its AI-driven data center business, which saw a 427% annual growth, fueled by strong demand for its Hopper graphics processors, including the H100 GPU.
This division has become a critical component of Nvidia’s revenue stream, as the company continues to capitalize on the growing demand for AI technologies.
For the upcoming Q2 report, Nvidia has set ambitious targets, expecting revenue of $28 billion, plus or minus 2%, with GAAP and non-GAAP gross margins projected to be 74.8% and 75.5%, respectively.
Analysts are predicting Q2 EPS of $0.59, reflecting a 136% year-over-year increase, and a consensus revenue forecast of $28.67 billion.
Is Now the Time to Buy Nvidia Stock?
Despite the bullish outlook, Nvidia’s stock has experienced a slight pullback, with shares down approximately 12% from their June highs.
This dip has raised questions among investors about whether now is the opportune moment to buy Nvidia stock.
From a valuation perspective, Nvidia’s forward price-to-earnings (P/E) ratio stands at 50.11x, significantly higher than the sector median of 23.75x.
However, the company’s price/earnings to growth (PEG) ratio of 1.33x is not only lower than the sector median of 1.94x but also below its historical average of 2.10x.
This suggests that, despite its premium valuation, Nvidia may still be reasonably priced considering its projected earnings growth.
Analyst Sentiment: Strong Buy Across the Board
Nvidia continues to enjoy overwhelming support from analysts, with a consensus “Strong Buy” rating. Out of 39 analysts covering the stock, 34 recommend a “Strong Buy,” while only three maintain a “Hold” rating.
The mean price target for Nvidia stands at $141.65, indicating an upside potential of 10.5% from current levels, with the highest target price of $200 suggesting a potential rally of up to 56.1%.
Notably, Bank of America’s Vivek Arya has named Nvidia as a top “rebound” stock following its brief dip into bear market territory.
Arya dismisses concerns about a slowdown in AI spending, emphasizing that large-scale enterprise and government AI adoption has yet to commence in earnest.
He also points out that Nvidia’s flagship Blackwell AI product, which is expected to be a game-changer, has not yet been released.