Can Nvidia Stave Off a Stock Collapse on Wednesday?

Key Points in This Article:

• Nvidia’s (NVDA) stock has surged 1,300% in five years, driven by its AI chip dominance, but faces intense scrutiny ahead of its August 27 earnings.

• Analysts expect a 53% revenue increase to $46.1 billion, but anything less than a stellar beat could trigger a sharp sell-off.

• NVDA’s high valuation and the market’s high expectations make the stock vulnerable to disappointment.

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Will a 53% Sales Surge Trigger a Collapse?

Nvidia (NASDAQ:NVDA) has been the linchpin of the artificial intelligence (AI) revolution, with its stock skyrocketing over 1,300% in five years, far outpacing the S&P 500’s 90% return. Its dominance in AI chips, particularly graphics processing units (GPUs), has propelled its market cap beyond $4 trillion, cementing its status as the market leader.

However, as Nvidia approaches its earnings report on Wednesday, expectations are stratospheric, with analysts projecting a 53% year-over-year revenue increase to $46.1 billion. Yet even this robust growth may not be enough to satisfy investors, given Nvidia’s lofty valuation and market scrutiny.

Sky-High Expectations Set the Stage

Nvidia’s stock trades at a forward P/E ratio of 30, reflecting investor confidence in its AI-driven growth. Its data center segment, accounting for 88% of revenue, thrives on demand from tech giants like Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) for AI infrastructure. Yet, a 53% revenue increase, while strong, pales against the triple-digit growth of recent quarters.

A mere earnings beat may not suffice — investors are demanding stellar guidance from tech leaders to justify their premium valuations. For example, Nvidia’s earnings beat estimates a year ago, but NVDA stock still fell 9%, showing how sensitive the stock is. Any sign of slowing growth could trigger a sharp correction.

AI Bubble Fears Gain Traction

Concerns about an AI bubble are mounting. OpenAI’s CEO Sam Altman recently warned of an AI sector “bubble” that sent shivers through the tech industry. Major Nvidia clients like Microsoft may have overinvested in AI data centers without clear near-term returns, potentially curbing spending. Additionally, Tesla (NASDAQ:TSLA) — a major Nvidia chip buyer — is reportedly adopting DeepSeek’s AI technology for electric vehicles sold in China, bypassing its own AI systems.

Though fears about DeepSeek’s low-cost AI model have largely subsided since January Beijing’s push to favor domestic chips over Nvidia’s H20, combined with Tesla’s shift, signals that Nvidia may struggle to reclaim China’s once-critical market, heightening investor unease.

China Export License Saga Adds Uncertainty

Nvidia faced a setback earlier this year when the Trump administration banned exports of its H20 chip to China over national security concerns, costing the company an estimated $8 billion in potential sales.

In July, after negotiations between CEO Jensen Huang and President Trump, Nvidia regained export licenses for the H20 chip but at a steep cost: 15% of its China chip revenues now go to the U.S. government, an unprecedented arrangement. This deal, also affecting Advanced Micro Devices‘ (NASDAQ:AMD) MI308 chip, reopens China’s $100 billion AI market but dents profitability.

Meanwhile, Beijing is urging companies to prioritize domestic chipmakers like Huawei, and Chinese state media has criticized the H20 chip for alleged security risks. Competitive pressures are also rising, with AMD and Intel (NASDAQ:INTC) advancing their AI chips and cloud giants like Amazon developing in-house solutions.

A 53% revenue surge may not reassure investors that its growth — and valuation — are sustainable if guidance reflects margin erosion or a permanent loss of China’s market share.

Earnings: A Make-or-Break Moment

Nvidia’s fundamentals remain robust, with gross margins near 70% and strong cash flow, but its valuation leaves little margin for error. A 53% revenue increase could disappoint if guidance doesn’t project sustained high growth or if margins slip further.

While a $5 trillion (or eventually even a $20 trillion) market cap is possible if earnings dazzle, any sign of a possible slowdown or if the China market recovery is elusive could bring on a crash. That’s why I wouldn’t be a buyer of NVDA stock before August 27 because everything must be perfect to stave off a crash.

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