Nvidia’s Q3 Results: A Crucial Test for the AI Sector’s Investment Momentum

The third-quarter results of Nvidia, which will be announced today, will be a key indicator for the investment narrative in the field of artificial intelligence. With its high market capitalization and key role in the AI sector, the company’s results can influence the overall market sentiment, especially considering the difficulties encountered by the S&P 500 index in maintaining the increase that has occurred following the Presidential election in the United States. The main question is: Is the AI sector strong enough to sustain investor enthusiasm or is it on uncertain ground, similar to the Trump 2.0 scenario?

As noted by Charu Chanana, Chief Investment Strategist at Saxo, the S&P 500 index has eliminated its post-election gains. Meanwhile, Nvidia’s results will be a serious test considering its status as the largest market cap company and key player in the AI revolution.

– The readings from our platform show that artificial intelligence remains one of the key investment themes, including among VIP clients who allocate significant resources to this sector. However, it is noteworthy that compared to the last quarter, AI has lost some of its importance as a decisive factor in our users’ investment strategies. This could suggest a change in approach to this sector. Nvidia’s results will be not only a test for the company itself but also the direction in which the entire AI market is heading. Investors should prepare themselves for various scenarios, including potentially increased volatility in the short term following the release of the results, says Marcin Ciechoński, responsible for Saxo’s offer in Poland.

According to Charu Chanana, there are three key areas to watch during the announcement of these results:

Production and demand for Blackwell

The introduction of Nvidia’s new generation Blackwell chips has become a major interest point for investors. Early signals suggest high demand for these products, and analysts predict record sales and foresee product sell-outs in the upcoming year. What should we pay attention to? In this context, it is important to monitor updates concerning production schedules and whether there will be limitations in the Blackwell chip supply chain. It is also worth verifying whether earlier management comments about selling out inventories for the next 12 months actually come true.

What could be potential reactions? A positive scenario is if Blackwell production does not undergo delays or demand exceeds expectations, Nvidia stocks may rise to new maximums. A negative scenario would be any signs of production delays or insufficient demand, which can put pressure on the stocks considering their high valuation.

Hints from hyperscale clients

Nvidia’s data center business is driven by hyperscale companies like Microsoft, Google, and Meta. These firms use Nvidia’s AI processors for generative artificial intelligence applications. These partnerships make up a significant part of Nvidia’s revenues and margin growth. In this context, it’s crucial to pay attention to updates regarding H100 and H200 processor adoption rates and the strength of demand for AI solutions offered by the company. Additionally, signs of hyperscalers continuing to invest in AI infrastructure could boost optimism. Information regarding the construction of the AI workload (training vs inference) and the development of large language models in the cloud versus edge computing will also be a critical factor.

Possible reactions could include– positive: solid forecasts from hyperscalers and sustained demand for AI chips could boost confidence in Nvidia’s ability to achieve above-average growth. On the contrary, a slowdown in hyperscale spending or competition from AMD in the AI field could negatively impact sentiment.

Effect of rumors about SMCI being delisted from stock exchange

SMCI is one of the key partners currently dealing with issues. The company is Nvidia’s third-largest client. Suggestions on the market are that Nvidia may move its orders to other IT infrastructure providers. This raises concerns about the stability of the supply chain. Clarity in the context of both companies’ cooperation and potential supply chain diversification to minimize risk will be key. Changes in the relationship with SMCI will potentially affect the production and delivery schedule of Blackwell chips.

A potential positive reaction would be a reassurance that Nvidia has minimized risks associated with SMCI, which could restore investor confidence. A negative reaction could be triggered if SMCI’s problems cause bottlenecks in production, leading investors to doubt Nvidia’s executive capabilities.

Strategy for long-term investors

Nvidia remains a key player in the field of artificial intelligence. However, to cope with short-term volatility, investors should apply an appropriate strategy:

• Focus on the broad perspective of AI development: Although quarterly results matter, Nvidia’s position as a leader in AI training, inference, and edge computing, puts it in a strong position for long-term growth.
• Diversify exposure through AI ETFs: Consider investing in ETFs such as Global X Robotics & AI ETF (BOTZ) or iShares Exponential Technologies ETF (XT) to get diversified exposure to the AI ecosystem and limit risk associated with individual stocks.
• Buying during dips: If financial results cause a correction, it might be an opportunity to purchase Nvidia stocks at more attractive valuations, assuming the AI investment thesis remains valid.
• Monitoring new competitors: AMD’s advancements in the graphics processor area indicate rising competition. It’s important to stay updated on how Nvidia defends its market share in this dynamic environment.

By observing these trends and applying a diversified approach, investors can effectively navigate Nvidia’s profile characterized by high growth and significant volatility.