Analysts' Ideas of the Week
Nvidia and Walmart Earnings: Key Drivers for AI and Consumer Market Trends in Focus
ByFRC Analysts
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Highlights
As the earnings season unfolds, investors are keenly observing Nvidia (NASDAQ: NVDA) and Walmart (NYSE: WMT), two industry leaders whose performances offer insights into the technology and retail sectors, respectively. Nvidia's trajectory reflects the rapid advancements in artificial intelligence (AI), while Walmart's results provide a window into consumer behaviour and economic health.
Nvidia: Riding the AI Wave
Business Overview and Growth Drivers
Over the past 12 months, Nvidia's stock has appreciated by 184%, significantly outperforming broader indices and most tech peers. Nvidia has established itself as a pivotal player in the AI revolution, primarily through its dominance in the graphics processing unit (GPU) market. These GPUs are essential for AI and machine learning applications, positioning Nvidia at the forefront of technological innovation.
Upcoming Earnings Expectations
Investors are anticipating robust growth in Nvidia's Q3 earnings, driven by sustained demand in its data center segment and AI-related products. Consensus estimates project revenue of US$33.13B, marking an 83% YoY increase, and earnings per share (EPS) of US$0.74, reflecting 85% YoY growth. In Q2 2024, Nvidia reported US$30.04B in revenue, up 122% YoY, and US$0.68 in EPS, up 152% YoY. Nvidia has beaten consensus revenue estimates in 16 of the last 17 quarters.
Potential Surprises
Upside:
- A surge in GPU demand from sectors beyond AI, such as gaming, could further boost revenues.
- Announcements of new AI partnerships or product expansions may enhance investor confidence.
- Upward revisions in forward guidance, particularly for 2024 AI-related revenues.
Downside:
- Indications of slowing AI adoption or regulatory challenges in key markets could temper growth expectations.
- Supply-chain disruptions impacting chip production.
Key Metrics to Watch
- Data Center Revenue: This segment is a primary growth driver, reflecting enterprise AI adoption.
- Gross Margins: Improvements here could indicate enhanced pricing power or operational efficiencies.
- Forward Guidance: Projections for AI demand in 2024 will be crucial for assessing future performance.
Walmart: Reflecting Consumer Health
Business Overview and Growth Drivers
Over the past 12 months, Walmart's stock has appreciated by 60%, outperforming the S&P 500 Consumer Staples and Consumer Discretionary indices, as well as competitors like Target (NYSE: TGT). Walmart's growth is attributed to its strategic focus on low prices for essential goods, appealing to cost-conscious consumers amid economic uncertainties. Investments in e-commerce, advertising, automation, and high-margin revenue streams, such as its marketplace and retail media units, have further bolstered its market position.
Upcoming Earnings Expectations
For the upcoming results, analysts expect Walmart to report a 4% increase in revenue, and 5% growth in adjusted operating income, indicating effective management of economic headwinds. In Q2 2024, Walmart reported US$169B in revenue, up 5% YoY, and US$0.67 in EPS, also up 5% YoY.
Potential Surprises
Upside:
- Stronger-than-expected performance in e-commerce and delivery services could enhance results.
- Higher same-store sales growth, particularly in groceries, might exceed expectations.
- Evidence of increased consumer spending on discretionary items.
Downside:
- Reduced foot traffic or weakening consumer demand in discretionary categories could negatively impact the outlook.
- Higher-than-expected inventory levels, signaling potential overstocking
Key Metrics to Watch
- Same-Store Sales Growth: This metric indicates the strength of Walmart's core operations.
- E-commerce Revenue: Growth in this area is vital as Walmart competes with online retailers.
- Inventory Levels: Efficient inventory management will reflect the company's readiness for upcoming demand.
Key Takeaways for Investors
1. Tech Momentum Hinges on Nvidia’s Results:
- Nvidia's earnings will likely influence the broader tech sector, particularly AI-focused stocks. Investors should monitor indicators of the AI boom's sustainability and potential risks related to economic or regulatory challenges.
2. Walmart as a Macroeconomic Indicator:
- Walmart's performance offers insights into consumer behavior amid inflationary pressures and rising interest rates. Strong results could reassure markets about consumer spending resilience, while weaknesses might raise concerns about economic headwinds.
3. Broader Market Implications:
- The combined results of Nvidia and Walmart will provide a comprehensive view of the technology and consumer retail sectors. Their performances are likely to influence market sentiment and investor positioning as the year concludes.
Investors should remain attentive to these developments, as they could signal pivotal shifts in market dynamics and inform investment strategies.
