Nvidia Earnings Bolster AI Trade

When I mentioned it was the most anticipated earnings call of the quarter, I wasn’t kidding around.

After the market closed on Wednesday, Nvidia Corp. (NVDA) released its quarterly earnings.

You know those movie scenes where someone yells in an office, and the entire office goes silent? That’s what watching mainstream financial media was like after the closing bell on Wednesday.

Nobody was talking about a challenge to the Federal Reserve’s independence by the Trump administration…

There were no pundits on display opining about the recent run of the S&P 500…

Instead, all eyes were on Nvidia.

As I mentioned last week, that’s because Nvidia is smack-dab in the center of the conversation about not just all things tech but also artificial intelligence (AI).

The AI boom has fueled the market since November 2022, when OpenAI released ChatGPT to the public.

Today, I’ll recap Nvidia’s earnings and analyze next week’s “bullish” and “bearish” quarterly calls.

Let’s get started…

Nvidia Earnings: The Call Everyone Wanted To Hear

Last week, NVDA made our “bullish” list as analysts projected an increase in the company’s quarterly earnings, from $0.95 to $1.00 per share.

The issue, however, was how the ban on selling Nvidia’s H20 processors to China was impacting the company’s bottom line.

I suggested the quarterly earnings would reflect minimal damage from that ban and that Nvidia would beat expectations.

Well, that’s precisely what happened:

Earnings per share (EPS) of $1.05 vs. $1.00 estimated.
Revenue of $46.74 billion vs. $46.06 billion estimated.

The company also projected its current quarter revenue to be around $54 billion, not assuming any H20 processors would be shipped to China.

Nvidia Increases Revenue For 7^th Straight Quarter

It marked the seventh consecutive quarter of revenue increases and reversed the slight decline in EPS from the previous quarter.

Initially, Wall Street didn’t react well to the fact that Nvidia was not moving its H20 processors through China, overlooking the fact that $180 million worth of the company’s chip inventory was released to a client outside of China.

To me, the earnings suggest there is still some steam left in the “AI trade.”

NVDA is back to a “Neutral” rating on Adam’s Green Zone Power Rating system after briefly crossing the 60-point “Bullish” threshold recently. This latest earnings beat could push that rating higher again in the weeks ahead.

Pro tip: To see where NVDA (and thousands of other stocks) rank, click here to see how you can gain full access to Adam’s system with a Green Zone Fortunes subscription.

Now, let’s analyze potentially “bullish” earnings for next week.

These stocks are expected to beat their previous quarter’s EPS, and thus, if those expectations are met or exceeded, they could potentially trade higher.

“Bullish” Earnings to Watch

For this screen, stocks must meet four criteria:

10 or more analysts cover the stock.
The average analyst recommendation is a “Buy.”
It BEAT analysts’ EPS estimates for the previous quarter.
The average analyst estimate for the current quarter’s EPS is greater than the previous one.

As earnings season starts to wind down, the number of S&P 500 companies reporting decreases. For this week, I included all the stocks in our universe on the screen.

Here are the 10 companies that made the list:

We’ll keep with the same tech/AI theme here, especially since most of the list consists of tech stocks.

Let’s focus on Hewlett Packard Enterprises Co. (HPE).

The company has grown from building and selling computers and printers to diving headfirst into AI and network automation.

Hewlett Packard recently announced advancements in its Juniper Networking portfolio, including the integration of agentic AI to bolster network operations.

That’s tech-speak for: We added AI to help with repetitive networking tasks.

HPE is expected to see a significant quarter-over-quarter boost in its quarterly earnings. Last quarter, the company reported EPS of -$0.82, meaning the company spent more than it earned.

If EPS comes in at or above estimates, it will not only be a sharp increase from the previous quarter, but a jump from the same quarter a year ago.

I believe HPE will either come in right at or slightly above estimates, and a beat could go a long way to pulling HPE out of “High-Risk” territory on Adam’s Green Zone Power Rating system.

Now, let’s pivot and look at potentially “bearish” earnings for next week…

“Bearish” Earnings to Watch

For our “bearish” earnings screen, we’re only looking for two things:

10 or more analysts must cover the stock.
The average analyst estimate for the current quarter’s EPS is less than the previous quarter’s.

We want companies that are covered by a sufficiently large group of Wall Street analysts who collectively expect the company to report a quarter-over-quarter decline in earnings.

As with our “bullish” screen, I opened the door to all companies, in and out of the S&P 500, this week.

Here are the two companies that passed this screen:

The curious stock here is Dollar Tree Inc. (DLTR).

I’ve discussed the rise of discount retailers in previous essays, including this one on TJX, ROST and TGT and, more broadly, this one on consumer spending.

The surprise here is that discount retailers have fared well recently because inflation pressures have caused Americans to do more bargain shopping.

However, with Dollar Tree Inc., the company set the stage for declines during its first-quarter earnings call.

There, management said they anticipate earnings volatility in the near term as EPS could be down as much as 50%.

Despite that, I think Dollar Tree’s EPS will fall short of the previous quarter’s; however, it will beat estimates … but not by much.

Now that the company has shed its Family Dollar business, the next several quarters will show investors how it is shifting to a singular focus on its core operations.

That is all I have for today.

Just a reminder, our office will be closed on Monday in observance of the Labor Day holiday. We will return to business as usual on Tuesday.

So, make sure to enjoy the long holiday weekend!

Safe trading,