Nvidia to report Q3 earnings amid investor concerns of AI overbuilding

Nvidia (NVDA) will report its highly anticipated third quarter earnings after the bell on Wednesday, its first such announcement since the company’s market capitalization briefly eclipsed $5 trillion last month.

The chip giant is the most important bellwether for the AI trade, with any miss or beat on projections set to impact price action on a wide array of AI stocks.

But according to Deepwater Asset Management managing partner Gene Munster, a beat and raise scenario may not necessarily be a good thing for the broader AI trade.

“The cross currents around next week’s earnings set up a Catch-22 for the AI complex, because stronger guidance can amplify worries about overspending, while a modest raise can be read as the first sign that growth is normalizing faster than expected,” he wrote in a note to investors.

The report comes after Peter Thiel’s hedge fund sold off its entire roughly $100 million stake in Nvidia. SoftBank Group (SFTBY) also unloaded all of its Nvidia stock, valued at $5.8 billion, as the company seeks to fund its own enormous AI bets.

It also follows remarks from Advanced Micro Devices (AMD) CEO Lisa Su during the company’s Financial Analyst Day, during which she said that she believes the data center market will be worth as much as $1 trillion by 2030.

Read more: Live coverage of corporate earnings

Going into Nvidia’s earnings, investors will be on the lookout for how much of the company’s revenue continues to come from hyperscalers like Amazon (AMZN), Google (GOOG, GOOGL), and Microsoft (MSFT). The chip designer regularly points out that roughly 50% of its data center revenue comes from those companies, and as competition heats up with AMD and cloud players tout their own AI processors, that reliance could become a liability.

But the AI trade also gained a major detractor last week in investor Michael Burry, who famously shorted the housing market ahead of the 2008 financial crisis. In a post on X, Burry claimed that companies, including Meta (META) and Oracle (ORCL), are artificially boosting their earnings results by understating the depreciation of data center equipment.

For Q3, analysts are anticipating adjusted earnings per share (EPS) of $1.25 on revenue of $55.1 billion, according to Bloomberg consensus data. That would represent increases of 55% and 57% increase versus the $0.81 EPS and $35.1 billion the company reported in the same period last year.

Of that $55.1 billion, $49.1 billion is expected to come from Nvidia’s data center business. Gaming is projected to bring in $4.4 billion.