Why Nvidia Stock Jumped After AMD Profits

What happened

Semiconductor manufacturer actions Nvidia (NASDAQ: NVDA) closed higher on Wednesday, responding sympathetically to a powerful earnings release from rival Advanced micro-systems (NASDAQ: AMD) the night before.

So what

On Tuesday, AMD wowed Wall Street with a pro forma earnings report of $ 0.63 per share – generally accepted accounting principles (GAAP) earnings were $ 0.58 per share – and sales of $ 3.85 billion of dollars. All of these results were considerably higher than Wall Street had predicted. The fact that AMD is heading for even higher third-quarter sales ($ 4.1 billion, “plus or minus $ 100 million”) has been even more encouraging for semiconductor investors, and a repeat of the strong 48% gross profit margin of the second quarter to boot.

All of this looks rather conducive to the release of Nvidia’s results, which is due out next month. Responding to bullish sentiment, investors bid on Nvidia stock for more than 2% earlier in the day, and the stock closed 1.5% higher on Wednesday.

Now what

Speaking of Nvidia’s second quarter earnings, analysts predict that when the company reports on August 18, Nvidia will post profits nearly double what it made a year ago – $ 4.09 per share, pro forma. Sales are expected to reach $ 6.3 billion for the quarter, up about 61% year-over-year.

Assuming all the numbers come close to what they’re supposed to achieve, analysts pegged earnings this year at $ 6.90 per share, valuing the stock at an expensive – but not extreme – price 28 times earnings. of the current year. Where things get tricky for the stock is next year, when the forecast calls for profits to drop by more than half, to around $ 3.23 – valuing the stock at a much more dangerous amount. 60 times cheeky earnings.

All that to say: Nvidia might have a fantastic Q2 and even a really good 2021 year, but watch out for 2022. This next step could be a headache.