Investors' high expectations for Nvidia earnings and potential stock impact

Nvidia (NVDA) stock rose during Monday's intraday trading session, ahead of the company's eagerly awaited first-quarter earnings report scheduled for release after Wednesday's market close. Analysts raised their estimates in anticipation of the report, but there are concerns that investors' expectations may be even higher, possibly resulting in a significant stock price movement following the earnings announcement. As of 1:40 p.m. ET on Monday, Nvidia shares were up 2.4% to $947.10, nearly doubling in value since the beginning of the year.

Increased estimates and target prices

Prior to Nvidia's earnings announcement on Wednesday, analysts raised their expectations for the chipmaker's performance, according to Visible Alpha's consensus estimates. Analysts now predict Nvidia's revenue to reach $24.74 billion, with net income at $12.91 billion or $5.19 per share. These figures are all slightly higher than the projections from the previous week.

The heightened expectations for Nvidia's results have prompted some analysts to raise their price targets for the stock. Barclays analysts, for example, increased their price target from $850 to $1,100, citing indications of an upside of more than $1 billion for the first quarter and a $2 billion upside in the July quarter.

Stifel analysts also raised their price target to $1,085 from $910, describing the chipmaker as a "top pick relative to the AI infrastructure investment theme."

Investors may have even greater expectations

Bank of America analysts noted that discussions with investors indicate "expectations appear to be well above the consensus estimates, as usual."

They mentioned that bullish investors anticipate first-quarter revenue of $26 billion, surpassing analysts' estimates, and expect guidance for the July quarter to be near $28 billion. In contrast, Visible Alpha's consensus estimates show analysts predicting second-quarter revenue of $26.96 billion.

Potential significant stock movement post-earnings

Due to these high expectations, analysts are concerned that merely beating earnings estimates might not suffice to impress investors. "Even if Nvidia meets these bullish expectations, the stock could still react negatively," Bank of America analysts noted.

Susquehanna analysts also expect "another strong report" from Nvidia but cautioned that given the "elevated expectations as the sell-side has increased July 2024 estimates," Nvidia might need to exceed expectations by at least $1.5 billion to avoid a muted reaction.

Pricing in the options market indicates that traders anticipate the shares could move by approximately 10% in either direction.

Significant stock movement before and after earnings reports has been typical for Nvidia in recent quarters. For instance, Nvidia shares fell before its February earnings report but gained over 9% in extended trading after the results surpassed estimates, subsequently driving the company's market capitalization above $2 trillion.