NVIDIA’s Rally Sets Up a Bigger Test Ahead of Earnings

Key Points

• NVIDIA’s early August rally strengthened the technical setup ahead of its fiscal Q2 earnings report.
• NVIDIA guided for fiscal Q2 revenue of $91 billion, plus or minus 2%, after reporting record fiscal Q1 revenue.
• NVIDIA’s cash flow, buybacks and dividend increase support the long-term case, but high expectations leave little room for disappointment.

NVIDIA’s NASDAQ: NVDA price action sent a signal in the first week of August, and it says this market is ready to move higher.

While hurdles remain, a significant catalyst lies ahead, suggesting the gains could be robust.

The signal is an 11% one-week advance, the largest single-week movement in over a year, confirming support at prior highs.

It reflects a market in acquisition mode with potential for momentum to increase as H2 progresses.

NVIDIA Fires Strong Technical Signal Ahead of Earnings Release

The technical outlook is solid, with only a single hurdle for price action: potential for resistance at the existing all-time high. Other than that, NVIDIA’s early August gain comes with bullish signals in the moving averages, MACD, and stochastic, which align with trend-following movement. Together, they make a strong signal, likely leading to a retest of the critical resistance, if not a higher high, by mid- to late-month, when the catalyst is expected.

More importantly, the move was underpinned by trading volume and supported by analysts who point to much larger gains. Fifty-one out of 53 analysts tracked by MarketBeat rate this stock as a Buy, showing strength across all three key metrics: the number of analysts, the consensus sentiment, and the consensus price target. While revisions slowed in July to a dribble, they reflect firming, with the consensus forecasting more than 30% upside from the critical resistance point and the high-end suggesting NVIDIA’s stock may still double.

Valuation metrics also suggest that NVIDIA’s stock may double with time. Trading at approximately 24x the current-year guidance, NVIDIA has only a slight premium relative to the S&P 500, about 7x to 10x below historical norms, setting the stage for a 50% upside from price-multiple expansion alone. When factoring in the growth trajectory, earnings projections put NVIDIA in the high single digits relative to its earnings as early as 2032, suggesting at least 100% upside is possible without the impact of multiple expansion.

Fiscal Q2 Results Are a Major Catalyst for NVIDIA

And the catalyst? The company's Q2 fiscal year 2027 earnings report is due in late August. NVIDIA guided for just over $91 billion in net revenue, up more than 95% compared to the past year, and an acceleration sequentially and year-over-year. The likely outcome, the expected outcome, is outperformance and hot guidance, as has been the case for years, which is the risk. Expectations are high, so a solid report may not be enough to catalyze the market into immediate action.

The worst-case scenario is that NVIDIA’s stock price goes nowhere. Tepid market response or not, NVIDIA will report healthy growth, solid margins, and outlook, compounded by its recent investments. They provide a path to near-term growth and profitability by securing supply chains, while also providing a path to long-term growth and profitability by securing future supply and technology.

Downside risk is further limited by the company’s cash flow, which enables self-funded investment and accelerated capital returns, and by institutional activity, which suggests they will buy on dips. Although the early Q3 activity reflects some caution, with total activity at a minimum and the balance tilted in favor of distribution, trailing 12-month activity is more robust. It reveals accumulation at approximately a $2-to-$1 pace.

Capital Returns Underpin Broad Market Support for NVIDIA Stock

Capital return is a reason why institutions will buy this stock on dips and help support the price action over time. As exciting as new technology is, cash flow drives institutional investment, and NVIDIA has institutional-quality cash production ability. The AI boom drives billions in quarterly cash flow, sustaining a fortress-like position and improving its capacity for returns despite its heavy investments.

The likely outcome is that NVIDIA sustains high-quality cash flow and cash flow growth in the upcoming years, allowing it to sustain aggressive share buybacks and dividend growth. Repurchases are the greater of the two, amounting to more than $19 billion of the nearly $20 billion in fiscal Q1 2027, resulting in an average reduction of nearly 0.9% compared to the prior year.

Reasons to believe that NVIDIA will outperform its guidance include the Q2 earnings reports from major hyperscalers, neoclouds, and adjacent equipment makers. They reveal cloud spending is still growing, focused on infrastructure buildout, while supply remains constrained. Meanwhile, NVIDIA’s initial Vera Rubin shipments are expected and will likely exceed forecasts. Adjacent hardware and software launches and ramps are also accelerating, providing the much-needed connections and networking for scale-out and scale-up applications.

As it stands, the only thing limiting NVIDIA’s revenue-generating ability is its ability to deliver. The risks are centered on supply chain bottlenecks, such as at Taiwan Semiconductor Solutions NASDAQ: TSM, which controls the bulk of the AI market and limits the capacity for advanced GPU solutions.

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