What happened
It’s Tuesday afternoon – about 28 hours to go to the semiconductor giant NVIDIA (NVDA 0.86%) reports fiscal second quarter 2023 results. But even before the news broke, Nvidia stock is moving higher today.
After gaining as much as 2.5% earlier in the day, Nvidia shares are still holding half of their gains as of 12:45 p.m. ET — up 1.3%.
so what
That’s actually a bit of a surprise as Nvidia previously said the earnings news won’t be great. If you recall, Nvidia released a preliminary report on Q2 results about two weeks ago.
In that report, management warned that its second-quarter earnings, previously forecast at about $8.1 billion, will actually come closer to $6.7 billion, primarily due to a sequential decline in for Video game purposes sold chips and slower. than expected sales of server chips for data centers. Gross profit margin on sales will also come in significantly weaker than investors were expecting, coming closer to 43.7% than the 65.1% Nvidia had previously hoped for.
Although Nvidia has taken steps to mitigate losses and its operating expenses will be slightly lower than expected, the net result from all of the above will likely still disappoint investors.
What now
So why is Nvidia in stock today? That’s a great question, but I suspect the answer might be as simple as: bottom fishing.
Look again at the diagram above. Since the start of 2022, Nvidia stock has been a 43% sell-off. Incidentally, the stock is down nearly 10% over the past week. Tomorrow’s Nvidia sales and earnings may not be everything investors were hoping for — analysts are forecasting earnings per share of just $0.20 per share, down 79% year over year. But one look at the stock chart is enough to tell you that there’s already a lot of bad news baked into Nvidia’s share price.
Granted, it’s possible there isn’t enough bad news baked in. But I have to say that at a P/E of 45 today and analysts are still forecasting long-term earnings growth rates of 22.5% for Nvidia — so a 2.0 PEG ratio — the stock is finally getting closer to a reasonable valuation. If Nvidia reports anything resembling a “profit hit” tomorrow — and is followed by anything but miserable guidance for the rest of the year, there’s even a chance Nvidia stock could explode post-earnings.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in Nvidia and recommends Nvidia. The Motley Fool has a disclosure policy.