Nvidia Back In Buy Zone But Analysts See Huge Risk To S&P 500 As Earnings Loom; Is Nvidia A Buy Now?

It is all about Blackwell when Nvidia (NVDA) reports its much-awaited third-quarter results Wednesday after the market close.

Shares are back in a buy zone from a buy point on Tuesday.

Investors who follow The IBD Methodology and realize there's earnings risk are wondering, should they buy the stock now?

On Monday, the Nvidia stock fell after reports that Blackwell, the next-gen AI chip, overheats when connected to its customized server rack.

↑ X NOW PLAYING How Nvidia Is Injecting AI Into The Health Care Industry

But Nvidia continues to outperform and has an ideal Earnings Per Share Rating of 99, while the stock holds a Composite Rating of 96.

The stock broke out again at a proper buy point of 140.76 on Nov. 6 amid the Donald Trump election rally.

On Tuesday, analysts at BofA Global Research observed that going by the options market, Nvidia's earnings poses more risk to the S&P 500 than the next jobs report, inflation report or Fed meeting.

According to FactSet data, Nvidia ranks first among S&P 500 companies for revenue and earnings growth estimates through 2026.

Analysts expect a compound annual growth rate of 5.7% in sales for the S&P 500 with 13.8% in earnings per share over two years. But they see Nvidia's two-year compound growth reaching 35.5% in sales and 35.1% in earnings per share.

On Thursday, chip lithography gear maker, ASML (ASML) maintained its 2030 sales target of $46.3 billion at the lower end.

The announcement follows a warning on Oct. 15, when ASML anticipated slower demand in 2025. That sent Nvidia stock nearly 5% lower on the day.

ASML President and Chief Executive Officer Christophe Fouquet said the company now expects it will be able "to scale (extreme ultraviolet lithography) technology into the next decade" and contribute to the artificial intelligence opportunity.

Analysts at Jefferies Group now believe that the slowdown in chip demand appears to be temporary. ASML's lithography machines are used by foundries that supply chips to Nvidia.

Analysts Views On Upcoming Results

Analysts have mixed views for Nvidia's upcoming results and for the October-ended quarter.

On Wednesday last week Mizuho analyst Jordan Klein said that analyst estimates for Nvidia's January quarter are targeting $36 billion to $39 billion in revenue. Nvidia has to hit the midpoint or higher, "or the stock gets hit hard."

However, for its upcoming third-quarter results on Wednesday, Morgan Stanley analyst Joe Moore cited concerns over a chip shortage that could dent its earnings and outlook.

The analyst maintained an overweight rating and 160 price target but sees the September-ended period as a "transitional quarter."

Revenue from its Blackwell chip could be $5 billion to $6 billion in the January quarter, the analyst said.

Funds Wary Of Nvidia Stock

Although the stock's price performance has beaten 96% of other stocks in Investor's Business Daily's database, funds have been wary of buying the stock lately.

The Accumulation/Distribution Rating, which measures price and volume action over the last 13 weeks, is just D on an A+ to E scale.

Analysts at Piper Sandler see a 20% upside for the stock and raised their price target to 175 from 140. The brokerage made it a top large-cap pick on Monday last week. Nvidia is positioned to gain most from the increase in the total AI accelerator market, which Piper Sandler sees at $70 billion in 2025.

Melius Research analysts also raised their price target to 185 from 165 and maintained their buy rating.

Nvidia has replaced Intel (INTC) in the Dow Jones Industrial Average. Nvidia is the fourth Magnificent Seven stock to join the Dow Jones industrials. The others are Apple, Amazon.com (AMZN) and Microsoft (MSFT).

Big Tech's Strong AI Spending

Recent news shows demand for Nvidia's AI chips remains high. The chief investment officer at UBS Global Wealth Management noted that "Big Tech's combined capex (capital expenditure) spending of $218 billion this year and another $254 billion in 2025 bodes well for the AI investment thesis."

Meanwhile strong AI data center demand helped Vertiv (VRT) beat earnings estimates for its September quarter.

In October, Chief Executive Jensen Huang said that a design flaw in its next-gen Blackwell chip had been fixed.

Earlier, yields were low but AI-chip maker Taiwan Semiconductor (TSM) helped "recover from that yield difficulty and resume the manufacturing of Blackwell at an incredible pace."

Nvidia stock cleared a trendline entry near 139.60 on Oct. 17 after Taiwan Semiconductor profits surged 54.2% year over year. Taiwan Semi is a big supplier of AI chips to Nvidia and Apple (AAPL).

Nvidia Stock: AI's Total Addressable Market

In September, consulting firm Bain said the total addressable market for AI hardware and software will grow 40% to 55% for at least the next three years.

Demand for Nvidia's next generation graphics processing units, the GB200, is expected to reach 3 million in 2026 vs. 1.5 million for its H100 units in 2023.

Elsewhere, analysts at Bernstein said that after its phenomenal growth, sustainability is the main question Nvidia faces, but the "time to worry is clearly not now."

On Sept. 3, Nvidia fell sharply below the 50-day moving average and saw the largest one-day market cap loss in dollar terms for any U.S. company, according to Dow Jones Markets Data. 

Earnings From AI Giants Move Nvidia Stock

Results from other AI leading companies have influenced the stock. Memory chipmaker Micron (MU) cited robust AI demand, which gave Nvidia stock a lift while Oracle (ORCL) Chairman and Chief Technology Officer Larry Ellison said his company is building a data center with "acres of Nvidia GPU clusters for training large language scale AI models."

But Broadcom (AVGO) results weighed on Nvidia. Broadcom's sales and earnings beat estimates but its sales outlook disappointed. 

Nvidia stock fell 6.4% after earnings on Aug. 29 even though it beat analyst estimates.

Nvidia's Second-Quarter Results

In August, Nvidia reported earnings that beat Wall Street views. Sales of $30.04 billion were higher than the $28.7 billion analysts expected and came in 122% ahead of the year-earlier quarter.

Earnings also came in above views of 65 cents, at 68 cents per share. That was 152% higher than the prior year.

The artificial intelligence chip leader also guided higher for the current quarter with sales of $32.5 billion vs. views of $31.7 billion. 

Earnings have moved Nvidia stock in 2023 and 2024 and that is shining proof of why fundamental performance is one of the pillars of The IBD Methodology. In 2023, Nvidia had a huge 239% run.

But fundamentals make up just one of four IBD pillars of investing — the others are a stock's technical strength, which indicates the stock's performance vs. other stocks, the market's direction and risk management.

AI Products Drive Growth

Nvidia's graphics processing units help accelerate computing in data centers and AI applications.

The company was a pioneer in graphics processors used in such industries as health care, automobiles and robotics.

In March 2023, generative AI took a leap forward with OpenAI's ChatGPT. According to Huang, Nvidia's AI-capable supercomputer paved the way for the "iPhone moment of AI."

That helped Nvidia turn the tide on its results. It had reported three quarters of declining year-over-year sales and four quarters of tapering earnings in late 2022 and early 2023.

But then the company achieved record top- and bottom-line growth in the five most recent quarters.

Is Nvidia Stock A Buy?

Nvidia stock is on the IBD Leaderboard, IBD SwingTrader and IBD 50.

Looking at chart signals and technical measures can help investors assess whether Nvidia stock is a buy now.

Nvidia has fallen below a buy point of 140.76, so it is not a buy right now. Investors should also be wary of earnings risk. The AI chip leader's fiscal third-quarter report is on Wednesday.

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