Nvidia is heading into its earnings report this Wednesday after the market close, with its stock down 2% and on track for a seventh consecutive day of decline, matching a losing streak from September 2022. This comes as AI infrastructure stocks, including Nvidia, are experiencing a downturn, with the S&P 500 falling 0.3%, the Nasdaq composite down 0.8%, and other chip makers like Micron Technology and Broadcom also seeing drops of 5.8% and 2.6% respectively. Despite a 13% year-to-date gain, the current slump indicates a cooling sentiment in the AI market.
Bloomberg reports that Nvidia-based AI servers are set to become more expensive, with server makers informing data center customers of price hikes exceeding 15% in some cases, primarily due to soaring memory costs affecting systems with Nvidia's Blackwell and next-generation Vera Rubin platforms. This rising cost coincides with high expectations for Nvidia's earnings, which are projected to show sales between $92 billion and $95 billion, and a doubling of adjusted earnings from the previous year. However, analysts emphasize that forward guidance on AI demand and data center spending by hyperscalers will be crucial to justify Nvidia's valuation and current share price, which is still up 18% across the year, ahead of the S&P 500.
While some analysts note that Nvidia's multiple looks low given its projected 90% growth this year, and that it's considered a high-quality company, concerns about "circular financing" in the AI sector persist. The upcoming earnings report is seen as a significant test for the AI trade, with investors keen to assess the outlook for demand and pricing of AI components. The market's focus will be on whether Jensen Huang can demonstrate that demand is accelerating rapidly enough to justify the company's valuation, despite the current period of growth deceleration.
In related news, SoftBank is planning a record $6.3 billion retail bond sale to fund its investment commitment to OpenAI, while Alibaba has raised $10.2 billion in a follow-on offering to lead in the global AI race. OpenAI's annualized revenue run rate is reportedly over $40 billion, roughly doubling from the end of 2025, driven by AI coding software, subscription sales, and advertising. However, its quarter-on-quarter sales growth has cooled to 18%, and losses have deepened. In contrast, rival Anthropic's annualized revenue has surpassed $65 billion, a more than sevenfold increase from the end of last year, indicating diverging fortunes for these companies as they prepare for potential IPOs amidst an escalating price war with Chinese competitors.
