Nvidia on Edge as New Risks Emerge Ahead of Big Tech Earnings

Nvidia (NASDAQ:NVDA) remains under pressure after entering a technical correction, having fallen 14% from its highest level this year. 

The AI chip giant now faces a crucial test as earnings from major technology companies over the next two weeks could either reignite investor optimism or trigger another wave of selling.

Nvidia Stock Faces Major Risks Ahead of Big Tech Earnings

NVDA stock is facing some major risks, which explains why it remains under pressure. A key risk is that China’s AI companies are doing relatively well as evidenced by Moonshot’s Kimi K3 model, which is beating OpenAI’s ChatGPT and Anthropic’s Claude. 

The ongoing growth in Chinese models means that they may take some market share from ChatGPT and Claude. Nvidia has invested heavily in the two companies. It invested $10 billion in Anthropic and $30 billion in OpenAI.

At the same time, Nvidia is seeing strong competition from some of its clients. Alphabet (NASDAQ:GOOG) is starting to ramp up its TPU sales, with Morgan Stanley expecting the business will bring $13 billion by 2027. 

OpenAI has unveiled its first chip, which is being manufactured by Broadcom (NASDAQ:AVGO). Microsoft, Amazon, and Meta Platforms are also working on their own inference chips. Other companies like Cerebras and AMD are also gaining market share. 

Most importantly, there is a risk that its biggest clients will announce that they were slowing their capital expenditure as costs jump. Big tech companies like Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) may see their stocks jump if they announce that they were slowing their spending.

On the positive side, analysts are optimistic that Nvidia’s growth will continue in the near future. The average estimate is that its second-quarter revenue will come in at $91 billion, up by 96% YoY. For the year, analysts expect the revenue to hit $393 billion. 

Analysts are Bullish on NVDA

Another positive is that Nvidia has become a bargain amid these fears. The company has a forward price-to-earnings ratio of 22, lower than the five-year average of 43. Similarly, the company has a Rule-of-40 metric of over 120%. 

Benzinga data shows that the average NVDA stock forecast is $309, much higher than the current $202. In a recent note, Keybanc boosted his target from $310 to $330, while DA Davidson maintained its rating to $300. The most optimistic analyst is Baird’s Tristan Gerra, who has a target of $500.

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