1 Artificial Intelligence (AI) Powerhouse That Could Crush Earnings Expectations Next Month

Nvidia (NASDAQ: NVDA) has a strong history of beating analyst expectations for quarterly earnings and sales. The company has beaten estimates in 9 of the past 10 quarters. According to data compiled by Barchart, Nvidia stock has risen on a majority of those earnings beats, but still fell on several occasions. So while an earnings beat doesn't guarantee a positive price jump, the odds are certainly stacked in that direction.

With so much market and trade uncertainty, it's reasonable to expect a weak earnings announcement from the company next month. But there's reason to believe the opposite could happen. As we'll see, Nvidia stands a good chance of beating earnings estimates next month. That, coupled with the stock being down more than 30% so far this year, could potentially lead to a sharp bump in valuation.

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2 Reasons to believe Nvidia will crush earnings

Nvidia's revenue growth estimates have come down sharply in recent months. Geopolitical tensions have generated uncertainty around global supply chains, especially regarding potential impacts from tariffs. Nearly one-third of Nvidia's sales last year may ultimately be tied to China in some way, whether that's through direct sales to China, related sales to Taiwan, or exports to Singapore that are then reexported to China. Rising pressures between the U.S. and China could make these exports more complicated, expensive, or even impossible to execute.

More importantly, however, end market demand -- especially from data centers -- continues to impress. Nvidia's data center segment experienced 93% growth year over year last quarter. Nvidia's management team has long expected this growth tailwind to continue for years to come. Previous estimates called for data center capital expenditures to hit $1 trillion industrywide by 2032, though that forecast has now been pulled forward to 2030. In a nutshell, the biggest driver of Nvidia's growth in recent years remains intact, and may be even stronger near term than many predict.

But it's not just end market demand that could boost results above expectations. Share buybacks could also play a role. Last August, the company announced a $50 billion stock buyback program. As of last quarter, the company has repurchased around $33.7 billion in shares, leaving $16.3 billion remaining. The share buyback program has already helped fractionally boost earnings per share. And if management was feeling aggressive, it may have stepped up these repurchases given Nvidia's weak share price so far this year. If share buybacks accelerate more than expected, we could see that translate into better per-share results, given the total number of outstanding shares would be lower than most analysts are predicting.

NVDA PS Ratio data by YCharts

Should you buy Nvidia stock before earnings next month?

It's important to remember that betting on a stock's quarterly performance is a difficult game. The numbers over such a short period of time can be difficult to guess. As Nvidia's post-results performance has shown over the last 10 quarters, a company can beat earnings and still see its stock price fall.

Betting on Nvidia shares today should be a long-term decision. Growth estimates have come down sharply, but end market demand should remain high, on average, for years to come. Shares are still expensive at 18.4 times sales, but Nvidia's high growth rates could make this valuation look like a steal a few years down the road.

Will Nvidia beat earnings estimates next month? I bet that it will. But from an investment standpoint, I'm focused more on what happens over the rest of this decade versus what happens a few weeks from now. Weak earnings could even provide an extra buying opportunity for patient investors.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.