Under competitive pressure, NVIDIA's performance is the biggest test currently facing the artificial intelligence market.
NVIDIA's highly anticipated earnings report is set to be released after the market closes on Wednesday Eastern Time (Thursday early morning Beijing Time). This is not only a performance report for the chip manufacturer but also a key litmus test for assessing whether the current AI boom in the U.S. stock market is at risk of a bubble burst.
On the eve of the earnings report, the market is shrouded in fears of the disruptive effects of AI and doubts about the sustainability of massive investments. Investors are beginning to feel uneasy about the hundreds of billions of dollars spent on AI infrastructure by tech giants like Alphabet and Microsoft, while fleeing industries such as software that may be threatened by AI, leading to significant sell-offs in related sectors. Analysts believe that NVIDIA's performance may be impressive, but it may not alleviate investors' concerns about an AI bubble.
According to pricing in the Bloomberg options market, traders expect NVIDIA's stock price to experience about a 5% fluctuation the day after the earnings report is released. Although Wall Street generally expects the company to deliver strong results, NVIDIA's stock price has only risen 3.4% since the beginning of the fourth quarter, and there is significant uncertainty about whether its excellent data can translate into upward momentum for the stock price.
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To alleviate market concerns about an AI bubble, NVIDIA not only needs to significantly exceed expectations in revenue and profit but must also provide irrefutable proof in cash flow realization, maintaining profit margins, and future order guidance to reassure investors who are anxious about the debt-driven spending of tech giants.
<h2>High Growth Expectations and Guidance Reassessment</h2>
Wall Street still holds extremely high expectations for NVIDIA's short-term performance. According to analyst estimates compiled by Bloomberg, for the fourth quarter ending January 31, NVIDIA's revenue is expected to grow significantly by 68%, reaching $65.9 billion, with adjusted earnings per share expected to soar 72% to $1.53. Reuters data shows that analysts expect its first-quarter revenue to further increase by 64.4% to $72.46 billion.
However, merely exceeding expectations may no longer be sufficient. Ivana Delevska, Chief Investment Officer of Spear Invest, pointed out that this earnings report is particularly important because there are significant concerns about whether AI spending is in a bubble, and proving that profits have not truly slowed down will be key. Additionally, investors will closely monitor updates on NVIDIA's backlog of orders. Executives had previously hinted at discussions with customers regarding data center orders for next year, and the market expects NVIDIA may update the $500 billion backlog data first mentioned last October.
To solidify its position in the inference market, NVIDIA reached an agreement worth approximately $20 billion last year to license Groq's chip technology, according to Reuters. Meanwhile, CEO Jensen Huang's statements during the earnings call will be closely monitored; earlier this month, he referred to the sell-off of software stocks due to disruption concerns as &#34;the most illogical thing in the world.&#34;
<h2>Profit Margin Risks and Cash Flow Concerns</h2>
Beneath the dazzling revenue growth, details such as gross margin and cash flow are becoming new focal points for investors. According to reports from Bloomberg and Reuters, due to the high production costs of Blackwell chips, NVIDIA's adjusted gross margin for the fourth quarter is expected to be 75%, the highest level in over a year, and is anticipated to remain around this level for the current fiscal year.
Melissa Otto from Visible Alpha stated that profit margins are a potential risk factor, and the market will focus on the gross margin performance in the first quarter and the guidance for the entire year. Investors need assurance that this high profitability can be sustained amid rising storage chip prices and other input cost increases.
Moreover, according to analysis from Swissquote Bank, investors are beginning to pay more attention to the gap between booked revenue and actual cash collection. In an environment of rising leverage and massive AI capital expenditures, investors not only want to see order contracts but also hope to see cash in hand. As hyperscale cloud computing companies account for nearly 50% of NVIDIA's customer base, the spending willingness and balance sheet health of these large clients are directly related to the quality of NVIDIA's cash flow.
<h2>Intensifying Competition and Supply Chain Bottlenecks</h2>
Although NVIDIA remains the biggest winner in the AI boom, its long-term dominance is facing erosion from clients developing their own chips and competitors. According to Reuters, Alphabet's Google has reached an agreement to provide its internally developed TPU chips to Anthropic and is in negotiations with NVIDIA's major client Meta for chip supply. Additionally, Meta has announced plans to purchase a large number of AMD chips to deploy up to 6 gigawatts of computing power.
In addition to changes on the demand side, supply-side constraints may also become a bottleneck. Jay Goldberg from Seaport Research Partners believes that given the capacity limitations of TSMC's 3-nanometer assembly line, NVIDIA will find it difficult to achieve significantly higher-than-expected growth in shipping speed.
Regarding overseas markets, developments in the Chinese market remain a focal point. Although NVIDIA previously stated that fourth-quarter revenue from Chinese data centers would not be included, investors will be eagerly looking for any updates on the company's sales in the Chinese market

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To reverse the market's concerns about the AI bubble, NVIDIA not only needs to significantly exceed expectations in revenue and profit but also must provide impeccable proof in cash flow realization, maintaining profit margins, and future order guidance to reassure investors who are anxious about the debt-driven spending of tech giants

- NVIDIA's upcoming earnings report is considered a critical test for the AI market, reflecting potential bubble risks in the sector.  
- Despite strong revenue growth expectations, investors are concerned about profitability, cash flows, and the impact of rising costs, influencing market sentiment and stock performance.  
- Increasing competition and supply chain constraints further threaten NVIDIA's long-term dominance, as major clients consider alternatives and partnerships that could affect demand.

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NVIDIA's earnings report tonight: How strong does it need to be to reverse the AI bubble panic?