Nvidia posts Q2 beat, lifts Q3 revenue outlook and FY28 growth; $40 trillion debt risk

Nvidia’s Unusual Move Please click here for an enlarged chart of NVIDIA Corp (NASDAQ: NVDA ).

Note the following: The chart shows that NVDA gapped up above the low band of Zone 1 (resistance).

RSI on the chart shows that NVDA has room to run.

Prudent investors should carefully watch whether NVDA can break above Zone 1.

If NVDA can break above Zone 1, it will be a tremendous positive.

We have been sharing with you that the key question for investors is: Are these AI-driven earnings cyclical or secular? If the earnings are secular, the stock market has significant upside, with the S&P 500 potentially going above 10,000.

On the other hand, if the earnings are cyclical, combined with the risk of the $40T U.S. debt, the stock market can easily fall 30% — 50%.

Apparently, NVDA is aware of this key question about AI-driven earnings being cyclical or secular.

NVDA took an unusual step during its conference call to answer the question.

Typically, NVDA has not given forward guidance.

During the conference call, NVDA gave the forward guidance we have been asking for.

Initially, after the NVDA earnings report, the stock fell because earnings were below the whisper numbers.

Here are the details: NVDA reported Q2 earnings of $2.22 vs. the $2.09 consensus estimate.

NVDA reported Q2 revenue of $96.2B vs. the $92.18B consensus estimate.

NVDA sees Q3 revenue of $108B ± 2% vs. the $103.9B consensus estimate.

At the beginning of the conference call, NVDA dropped a bombshell.

NVDA guided FY28 revenue growth to about 70%.

NVDA said the growth projection would have been 100% if it were not for supply constraints.

In our analysis, there are five factors behind the blowout projections for FY28: Space Exploration Technologies Corp (NASDAQ: SPCX ) is ramping up at a much larger scale than expected.

Neoclouds such as Nebius Group NV (NASDAQ: NBIS ), CoreWeave Inc (NASDAQ: CRWV ), and IREN Ltd (NASDAQ: IREN ) are ramping up faster than expected.

Traditional hyperscalers such as Amazon.com, Inc. (NASDAQ: AMZN ), Alphabet Inc Class C (NASDAQ: GOOG ), Microsoft Corp (NASDAQ: MSFT ), and Oracle Corp (NYSE: ORCL ) are planning to deploy more GPUs than expected.

NVDA increasingly providing circular financing is helping.

NVDA is pushing through price increases and thus generating more revenue.

In our analysis, if NVDA’s conference call is to be believed, the probability of earnings growth being secular is higher than the probability of earnings growth being cyclical.

However, prudent investors should revisit the period prior to the internet crash in the stock market in 2000.

Stock market darlings of the day, such as Lucent, Nortel Networks, and JDS Uniphase, were saying the same thing that NVDA is saying now.

Just as NVDA is providing circular financing now, major vendors were providing significant vendor financing in the late 1990s.

Ultimately, demand did not materialize to the level anticipated, and vendor financing became part of the undoing that led to the internet crash.

As full disclosure, we are long NVDA from $12.55.

There is also an NVDA trade around position in our report.

A trade around position is a billionaire and hedge fund technique that can dramatically increase your returns and reduce your risk.

In our analysis, prudent investors should pay attention to the fact that the cost of tokens is going down, but the cost of compute for tokens is going up.

On the surface, such a situation can lead to a death spiral.

However, the present data may change over time as AI usage expands.

This is an important data point that prudent investors need to keep an eye on.

NVDA earnings are bringing aggressive buying into tech stocks in the early trade.