Nvidia, the undisputed champion of the AI revolution, has treated its investors to a roller coaster ride for the past couple of years. With a market cap fluctuating wildly by nearly nine times since the end of 2022, the company reached an all-time high in June, making a brief appearance as the world's most valuable public entity before experiencing a dramatic decline, shedding approximately $800 billion in market cap. Now, Nvidia is once again on the verge of another rally, inching ever closer to its record high. 

As Nvidia gears up to report its Q2 earnings on Wednesday, Wall Street is keenly following the stock's volatility. Any hint of a decrease in AI demand or a leading cloud customer tightening their purse strings could trigger substantial revenue losses. With Nvidia's revenue having more than tripled in the past three quarters, the majority of the growth originating from the data center business, analysts predict another quarter of triple-digit growth at a reduced pace of 112% to $28.7 billion. However, growth is expected to decelerate in the following six quarters. 

Investors will be keeping a hawkish eye on Nvidia's October quarter forecast, with expectations of a 75% growth to $31.7 billion. An optimistic guidance will imply that Nvidia's deep-pocketed clients are eager to maintain investing in the AI buildout, while a disappointing forecast could raise concerns about infrastructure spending. 

Despite Nvidia's expanding profit margin, the company is still grappling with questions about the long-term return on investment for its clients. During Nvidia's last earnings call in May, CFO Collette Kress offered data points suggesting that cloud providers, accounting for over 40% of Nvidia's revenue, would generate $5 in revenue for every $1 spent on Nvidia chips over four years. More such statistics are likely on the way. 

Another significant issue facing Nvidia is the timeline for its next-generation AI chips, code-named Blackwell. According to a report from The Information earlier this month, the company is encountering production issues, which will likely cause big shipments to be delayed until the first quarter of 2025. Nvidia had previously communicated that production would ramp up in the second half of the year. This report came after Nvidia CEO Jensen Huang stunned investors and analysts in May by asserting that the company will see 'a lot' of Blackwell revenue this fiscal year. 

While Nvidia's current generation of chips, called Hopper, continues to be the premier option for deploying AI applications like ChatGPT, competition is intensifying from Advanced Micro Devices, Google, and a plethora of startups. This escalating competition is forcing Nvidia to sustain its performance lead through a seamless upgrade cycle. Even with a potential Blackwell delay, the revenue could simply be shifted to a future quarter while simultaneously boosting current Hopper sales, particularly the newer H200 chip. 

Many of Nvidia's leading customers have expressed the need for the additional processing power of Blackwell chips to train more advanced next-generation AI models. However, they are willing to accept what they can get. Nvidia is expected to deemphasize its Blackwell B100/B200 GPU allocation in favor of ramping up its Hopper H200s in the second half

Nvidia: Riding the AI Wave - Will the Upcoming Earnings Report Surf the Trend?

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