How low can a stock go if it misses earnings? Well, look at its 52-week low. If that happens to Nvidia (NASDAQ: NVDA | NVDA Price Prediction), the stock would drop 20% to $165, where it was in late March. That was when AI suddenly fell out of vogue amid worries it wasn’t the greatest invention of all time.
Oracle(NYSE: ORCL) missed earnings, dropping more than half, but it is considered the weakest of the large tech companies. IBM (NYSE: IBM) fell 20% on a miss, but it is a third-tier company. Before Meta (NASDAQ: META) posted poor results, it fell 20% and is down over 25% for the year.
More broadly, the big question is when investors will sell off the AI sector. Many market experts say it is inevitable. The stocks of the core companies that lead the sector have risen too far too fast.
Nvidia said to expect revenue of $91 billion for the quarter it will report this week. The assumption today is that, as nearly the only game in town for high-end AI chips, the tide of demand will drive it higher, no matter what.
Even if the company hits the $91 billion mark, much of the focus will be on the guidance for the current quarter. Nvidia’s forecast numbers are very exact. Usually it says its forecast will be within a range of 2% up or down from its forecast number.
What sinks Nvidia’s boat? At the top of the list is slowing data center growth, which could be driven by protests that have slowed construction. The Information puts that figure at 500 today, and probably growing.
But what should worry investors more is the jump in corporate statements questioning products from the biggest AI players. Some of these customer companies have throttled back their investments.
And Nvidia’s own customers have started to compete against it. Yahoo recently reported, “The list of companies creating technologies that could reduce the industry’s reliance on Nvidia might be longer than a shopping list for making a traditional mole poblano.” Among these were Microsoft (NASDAQ: MSFT) and Meta.
Nvidia’s upcoming earnings will show whether it has reached the point of even a single weakness. Its stock trades as if it has not. This makes the margin of error on its numbers very, very small.
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