Nvidia’s Stock Faces Challenges Ahead of Earnings Report

Shares of Nvidia Corporation have recently lost momentum, breaking a four-week streak of gains. As the company approaches its first fiscal quarter earnings report this week, analysts express concerns about potential trade pressures that could significantly influence its guidance.

Market Performance and Analyst Insights

Nvidia’s stock, which saw a remarkable 16% uptick in the previous week, ended last week in the red, down approximately 3%. This turn of events has drawn attention from financial analysts, particularly those at Bank of America and Mizuho Securities. Both institutions hinted at a period of adjustment for chip stocks, given the overall market trends and recent political developments.

Jordan Klein, a desk-based analyst at Mizuho Securities, remarked that while semiconductor stocks had been performing well recently due to a temporary pause in tariffs between the U.S. and China, the near-term outlook for these stocks might not seem as favorable anymore. “Not saying everyone dumps Semis today,” Klein noted, “but many of the stocks rallied so much that the near-term risk-reward no longer looked favorable in my eyes into mid-year.”

Concerns Over Guidance Amid U.S.-China Tensions

The looming earnings report has created an air of uncertainty, especially regarding Nvidia’s guidance for the upcoming July quarter. Analysts from Bank of America confirmed their buy rating for Nvidia’s stock (NVDA) but tempered expectations by cautioning about the potential for “messy” guidance. The complexity arises primarily from newly imposed restrictions affecting Nvidia’s operations in China.

In April, U.S. President Donald Trump instituted a ban on Nvidia’s specially designed H20 chip sales to Chinese customers. This rule change is anticipated to cause substantial financial repercussions for the company, as it expects up to $5.5 billion in charges for the April quarter alone. In an interview with Stratechery, Nvidia’s CEO Jensen Huang described the ban as “deeply painful,” sharing that Nvidia had effectively “walked away from $15 billion of sales” and “$3 billion worth of taxes” due to the regulation.

Future Earnings Expectations

As Nvidia prepares to unveil its earnings, analysts, including Vivek Arya from Bank of America, are closely monitoring the company’s gross margin performance. Investors are particularly keen on signals that the gross margins will rebound to around the mid-70% range in the latter half of the year, signaling a recovery tied to the rollout of Nvidia’s Blackwell platform.

Despite the challenges posed by heightened geopolitical tensions and regulatory changes, Arya lauded Nvidia as a “top sector pick,” crediting its unique leverage in the ongoing global AI deployment cycle. There is also optimism regarding potential sales recovery in China with the introduction of redesigned and compliant products later in the year.

Revised Revenue Projections

Looking ahead, Bank of America analysts anticipate a “modest” earnings beat for the April quarter, projecting that the fallout from the H20 ban could lower gross margins to approximately 58%. In contrast, prior guidance estimated margins at around 71% before the imposition of the ban.

For the July quarter, analysts surveyed by FactSet estimate revenues could reach $46 billion. However, Bank of America has adjusted its revenue forecast down from $48 billion to $46.4 billion, reflecting the changes in market conditions after the H20 regulatory shift.

Conclusion

The upcoming earnings report from Nvidia is poised to shed light on the company’s current financial health and market position amidst a challenging regulatory landscape and evolving market conditions. With analysts divided on predictions due to recent events, investors will be eagerly awaiting confirmations of growth strategies and shifts in guidance that could impact the semiconductor sector as a whole.