This round of AI frenzy faces its "greatest challenge": the unveiling of NVIDIA's earnings report next Thursday!

The AI frenzy is still going strong, with the "leader" NVIDIA's stock price continuing to soar. However, this trend will face a crucial test next week with the release of NVIDIA's second-quarter earnings report.

This week, NVIDIA's stock price rose by 2.80%, accumulating a total increase of 198% since the beginning of the year. As of last Friday's closing, it reached $432 per share, a surge that is causing some concerns.

Next Wednesday, NVIDIA will announce its second-quarter earnings report after the US stock market closes, which will be the "biggest test" for this AI frenzy.

Currently, analysts have high expectations for NVIDIA's earnings report. However, if the company fails to meet its targets, it could seriously hinder the AI boom and impact tech giants such as Microsoft, Google, Meta, and AMD.

Surging Demand and High Expectations from Analysts

Currently, tech companies of all sizes are scrambling to get their hands on NVIDIA chips. It is said that orders are booked until 2024, and major companies like Musk and Saudi Arabia are trying to secure as many NVIDIA chips as possible.

This surge in demand is the reason behind NVIDIA's better-than-expected second-quarter performance guidance announced during the last earnings conference call. Analysts initially estimated revenue to be $7.2 billion, but NVIDIA stated that it would achieve approximately $11 billion in revenue for the quarter, a 64% increase compared to the same period last year. Wall Street analysts now expect this target to be met next week.

Wall Street also predicts earnings per share of $2.07, a 306% year-on-year growth. NVIDIA is accustomed to large numbers, but these figures have raised high expectations for next week's report.

Forrester analyst Glenn O'Donnell explains:

The content NVIDIA reveals in the upcoming earnings report will be a barometer for the entire AI hype. Due to the high demand, NVIDIA's performance will be outstanding, which means they can achieve higher profit margins than before.

Wall Street Bullish, Hedge Funds Rushing In

Several Wall Street firms have expressed their bullish views on this semiconductor giant.

Rosenblatt Securities analyst Hans Mosesmann raised his target price to an astonishing $800, implying an 80% increase from the current price. Mosesmann stated:

There is no doubt that NVIDIA is racing ahead on the AI highway, leaving its competitors behind. With unparalleled advantages in compilers, libraries, and software tools, NVIDIA can overcome hardware specification challenges and drive recurring software revenue.

In addition, Wells Fargo raised NVIDIA's target stock price from $450 to $500. BMO Capital Markets analyst Tristan Gerra increased the target price from $475 to $570. Similarly, Morgan Stanley has expressed the same optimistic view, stating that "a large amount of spending is shifting towards artificial intelligence, and NVIDIA remains our top choice." UBS has also raised its target price for NVIDIA, stating that "the company is simply a king, with a wave of capital and new financing tools chasing new artificial intelligence software and professional cloud infrastructure."

"Some large hedge funds have also invested in NVIDIA, even after the stock price has risen sharply. Funds such as Lone Pine, Third Point, Viking, and D1 Capital have all entered this artificial intelligence company for the first time in the second quarter."

A few funds only caught up with the "fast train" of NVIDIA in the second quarter. Among the new hedge fund holders in the second quarter, there are well-known funds such as Lone Pine Capital and Third Point. The former currently holds 2.5% of NVIDIA shares in its $11 billion publicly traded stock portfolio, and the latter holds 3% of NVIDIA shares in its $6.8 billion publicly traded stock portfolio.

Hidden concerns: Supply shortage and fierce competition

However, behind the optimism, there are still hidden concerns.

With further increase in demand, NVIDIA is facing a supply shortage issue and is unable to provide as many chips as possible according to customer needs. SMIC, one of NVIDIA's preferred chip suppliers, is already struggling to meet NVIDIA's order demands. According to Timothy Arcuri, an analyst at UBS Group, "the surge in demand has delayed the delivery cycle of NVIDIA's key H100 chips by six to nine months."

In addition to the supply shortage issue, NVIDIA also needs to face fierce competition in the semiconductor industry. Although NVIDIA has established a leading advantage in the field of artificial intelligence through early investments, there is no absolute safety in the industry. Intel serves as a warning that no industry's leading position is secure.