Nvidia Reports Earnings on Nov. 17. Here's What Investors Should Be Watching.

On November 17, Nvidia is set to release its earnings report, following a decline in its stock value by more than 30% from its October peak. The company has consistently exceeded its revenue forecasts for the past 14 quarters, with the latest quarter generating $96 billion in sales, surpassing the previous year by more than $3 billion. However, this earnings report is particularly significant due to recent developments, including Jensen Huang's resignation from his position as CEO.

Nvidia specializes in designing graphics processing units (GPUs), which have become essential for handling complex computing tasks and are widely utilized in AI applications. Consequently, Nvidia's GPUs serve as the foundation for many AI models. As a result of its dominant position in the market, Nvidia's sales and profits have experienced exponential growth.

However, the question remains as to how sustainable this growth will be in the future. Analysts anticipate that the company will report revenue of around $109 billion for the upcoming quarter, representing a 91% increase compared to the previous year, along with adjusted earnings of $2.47 per share.

The company's projected revenue growth for the fiscal year 2028 stands at approximately 70%, but investors are keen to know if this trajectory will continue. CFO Kress, who will be joining the earnings call, has previously mentioned that supply constraints have been hindering further growth due to the company's inability to meet customer demand. Any updates on these constraints during the earnings report could provide insights into the potential for accelerated growth.

One key metric that investors should closely monitor is Nvidia's gross margin, which represents the percentage of revenue remaining after accounting for the cost of products sold. The company forecasts gross margins of about 74% for the current quarter, a slight decrease from the previous quarter's 75%. Management attributes this decline to higher memory costs, but it also warns that margins could contract between 71% and 72% in the fourth quarter, indicating that the company may generate less gross profit per dollar of revenue.

This reduction in margins stems from Nvidia's increased investment in supporting its customers, including AI developers and data center leases. While such support can assist customers in funding expansion and potentially leading to a larger purchase of Nvidia's hardware, it also exposes the company to financial risks if customers default.

Additionally, Nvidia faces competition from its major customers, Amazon (AMZN -0.29%) and Alphabet (GOOG -0.96%), who are developing their own AI chips, such as Trainium and TPUs. These alternatives may divert a portion of Nvidia's revenue away from its hardware, potentially impacting the company's growth. The board's investigation into potential secrets compromised during Huang's tenure has not revealed any substantial findings, but investors will be attentive to any updates regarding the transition of leadership and product development responsibilities during the leadership transition.