Nvidia Q2 Earnings Analysis, Rate Cuts & Pilbara Minerals

7 min read

Dear Reader,

Welcome back to our latest edition of Market Insights with Sanjeev Kaushik.

In this edition, we analyze Nvidia’s latest earnings report, breaking down the numbers to help you decide whether to hold onto your shares or consider selling.

With central banks eyeing potential rate cuts, we also discuss its implications for the labor market and how it might impact your investment strategies.

Additionally, we take a closer look at Pilbara Minerals, evaluating whether now is the right time to invest in this rising star in the mining sector.

So let’s dive right into it..

Today at a glance:

• NVDA Q2 Earnings Released: Hold or Sell?
• Sanjeev’s Views on NVDA
• Rate Cuts Amid Labor Market Concerns?
• Is Pilbara Minerals a Buy?
• To Trade or Not to Trade Options?

NVDA Earnings Released: Hold or Sell?

Nvidia Corporation (NASDAQ:NVDA) has been a key player in the tech industry, especially with its significant impact on AI and data center markets. Following its latest earnings report, investors are keen to understand whether now is the time to hold or sell their Nvidia shares.

Here’s an in-depth look at Nvidia’s recent performance, guidance, and the implications for its stock.

Record-Breaking Numbers

Nvidia’s Q2 results were nothing short of spectacular. The company reported record revenue of $30 billion, up 122% year over year and 15% quarter over quarter. This performance exceeded analysts’ expectations, who had forecasted $28.6 billion in revenue and $0.64 in adjusted earnings per share (EPS). Nvidia delivered an EPS of $0.68 while surpassing its own revenue forecast of $28 billion.

The star of the show was Nvidia’s data center segment, which saw revenue soar 154% year over year to $26.3 billion. This growth was largely driven by the surging demand for AI technologies among cloud computing and hyperscale data center operators. While AI was the main driver, other segments also contributed to Nvidia’s impressive performance:

• Gaming: Grew by 16% to $2.9 billion.
• Professional Visualization: Jumped 20% to $454 million.
• Automotive: Climbed 37% to $346 million.
• Original Equipment Manufacturer: Increased 33% to $88 million.

Nvidia’s gross margin also improved to 75.1%, up from 70.1% in the previous year, although it edged slightly lower from 78.4% in Q1 due to inventory provisions for its Blackwell chips and changes in product mix.

Gross Margin Decline Raises Concerns

Despite the revenue growth, Nvidia’s non-GAAP gross margin (excluding SBC) for Q2 was 75.7%, reflecting a 320 basis point QoQ decline. This decline was attributed to inventory provisions for low-yielding Blackwell material and a higher mix of new products within the Data Center segment. However, the gross margin still exceeded the midpoint of company guidance by 20 basis points.

Nvidia’s non-GAAP EPS (excluding SBC) came in at $0.68, which was 6% above the FactSet consensus, indicating a modest but notable earnings beat.

The Road Ahead

Despite these stellar results, Nvidia’s stock dipped around 7% in after-hours trading. The market’s reaction seemed to reflect a growing concern among investors that Nvidia’s growth might be slowing down after its meteoric rise. Management’s guidance for Q3 revenue of $32.5 billion, representing 80% year-over-year growth, was seen as a deceleration from the triple-digit growth the company has consistently delivered in the past five quarters.

Yet, Nvidia remains optimistic about the future. CEO Jensen Huang highlighted strong demand for the current Hopper chip and expressed confidence in the upcoming Blackwell architecture.

Nvidia has already shipped customer samples of the Blackwell chips and plans to ramp up production in Q4, extending into fiscal 2026. The company also dismissed concerns about potential delays in Blackwell’s rollout, reassuring investors that any production issues had been addressed.

Nvidia’s robust financial health is another positive, with free cash flow more than doubling to $13.5 billion. This has enabled the company to increase its returns to shareholders, with the board approving an additional $50 billion in share buybacks.

Impressive Growth but Tempered Expectations

In summary, while Nvidia’s growth may be slowing from its recent breakneck pace, the company remains a dominant force in the AI industry with a long runway for future growth. Its durable competitive advantage, strong financial performance, and continued innovation position it well for the years ahead.

However, as with any high-growth stock, expectations need to be tempered. The market’s reaction to Nvidia’s Q2 results serves as a reminder that even the most successful companies can face challenges when investor expectations become too lofty.

For long-term investors, Nvidia’s future remains bright, but the path ahead may be less about explosive growth and more about sustained, steady progress.

Should You Buy, Hold or Sell Nvidia?

Given the modest earnings beat, solid guidance, and the strategic focus on AI and data center markets, holding Nvidia stock appears to be a prudent choice for long-term investors.

However, the stock is currently on Goldman Sachs’ Americas Conviction List, with a 12-month price target of $135, suggesting a potential upside of just 5.2% from the current levels.

Key risks to consider include a sudden decline in AI infrastructure spending, further GPU export restrictions, delays in new product introductions, and potential supply chain issues. Investors should weigh these risks against Nvidia’s strong market position and growth potential when deciding whether to hold or sell.

Rate Cuts Amid Labor Market Concerns?

In a recent speech at the Fed’s Jackson Hole conference, Chair Jerome Powell hinted that a rate cut is likely at the upcoming September meeting. However, he stressed that the exact timing and size of the cut would depend on the latest economic data.

Powell’s remarks align with earlier signals from the Fed, reflecting increased confidence in controlling inflation but also a growing focus on potential weaknesses in the labor market.

Powell highlighted that while progress is being made toward the Fed’s 2% inflation goal, concerns about the labor market are rising. He noted that any further weakening in the job market would be “unwelcome,” indicating that the Fed is nearing its limit on tolerating job losses.

Looking ahead, we still expect the Fed to implement a series of three 25-basis-point cuts in September, November, and December. This prediction is based on our expectation that the August jobs report will show improvement over July’s numbers. However, if the August report turns out weaker than expected, a larger 50-basis-point cut might be on the table. Powell’s emphasis on the Fed’s readiness to act quickly if the job market deteriorates further supports this view.

In summary, while the Fed is moving closer to cutting rates, the extent of those cuts will largely depend on how the labor market performs in the coming weeks. Powell’s comments suggest a careful balancing act as the Fed seeks to support the economy without triggering further job losses.

Is Pilbara Minerals a Buy?

In the ever-evolving landscape of the lithium market, Pilbara Minerals Ltd. (ASX: PLS) has remained a significant player. Recently, Goldman Sachs released a report offering a cautiously optimistic view on PLS, though it notably refrained from assigning a formal rating.

Despite this, it’s essential to note that PLS currently holds the highest shorts in the market. This blog explores Goldman Sachs’ perspective on PLS and the implications of its high short interest.

Goldman Sachs’ Outlook on PLS

Goldman Sachs’ report on Pilbara Minerals revealed a mixed bag of insights. On the one hand, the report acknowledges the challenges faced by PLS, particularly the significant drop in earnings due to lower lithium prices. PLS reported an underlying EBITDA of A$538 million, down approximately 84% year-on-year. This decline was largely attributed to the sharp drop in lithium prices and expenses related to the mid-stream project and the inclusion of PLS’s share of the POSCO JV net loss.

However, despite these challenges, looks like Goldman Sachs remains cautiously optimistic. The firm highlighted that PLS has taken steps to improve its financial flexibility and liquidity, such as securing a new A$1 billion debt facility. This facility is expected to provide PLS with the necessary headroom to manage existing debt and support future growth initiatives.

High Short Interest: A Red Flag?

While Goldman Sachs’ cautious optimism provides a somewhat positive outlook, it’s crucial to address the elephant in the room—PLS has the highest short interest in the entire market.

Pilbara Minerals still holds the most significant short interest.

High short interest typically indicates that a significant number of investors believe the stock price will decline. This sentiment could be driven by the uncertainties surrounding lithium prices, PLS’s financial performance, or broader market conditions.

What Does This Mean for Investors?

The combination of Goldman Sachs’ cautious optimism and the high short interest presents a complex picture for investors.

On one hand, PLS’s efforts to secure additional liquidity and its potential for growth if market conditions improve are positive signs. On the other hand, the high short interest suggests that there is significant skepticism about the company’s near-term prospects.

Investors should approach PLS with caution, balancing the potential for recovery in the lithium market with the risks highlighted by the company’s recent financial performance and the bearish sentiment in the market.