May 20 will be an important day for the stock market, as Nvidia (NVDA +0.64%), the largest company in the world, is set to release its first-quarter fiscal year 2027 results for the period ending April 26. No single earnings release has commanded the attention of Wall Street as much as Nvidia's in recent years, and the upcoming one will be no different. Should investors consider purchasing the company's shares before then?
My view is that it wouldn't be a bad idea to do so, as there are good reasons to think Nvidia might be heading toward a beat-and-raise quarter that could send its stock price soaring. Of course, we can't predict these things with certainty, but let's consider several arguments as to why Nvidia's shares might jump on the heels of its upcoming earnings release.
Image source: The Motley Fool.
Major hyperscalers are on a spending spree
Nvidia's biggest customers are likely major hyperscalers -- or leading cloud services providers -- such as Amazon, Microsoft, and Alphabet. All three reported their latest quarterly results about a couple of weeks ago. All three are seeing accelerating cloud revenue. And all three are spending small fortunes on capex, largely to fund their artificial intelligence (AI)-related ambitions. For instance, Microsoft said it would spend $190 billion during the calendar year 2026.
Amazon still plans to dish out roughly $200 billion, and, as of the end of the first quarter, it had spent less than a quarter of that. Alphabet's management noted that capex spending, already elevated this year (between $180 billion and $190 billion) would significantly accelerate in 2027. It's also worth noting that even beyond these three cloud computing juggernauts, other companies are sparing no expense in their quest to capitalize on AI. Tesla and Meta Platforms are among the most notable here.
What does all this tell us about Nvidia? The company remains the leader in the AI chip market, and contrary to the bears' prediction, the AI bubble doesn't look likely to burst anytime soon. In fact, if anything, demand for AI chips may be accelerating. We could see the impact of this phenomenon on Nvidia's upcoming quarterly update, potentially leading to a beat-and-raise.
NASDAQ: NVDA
Key Data Points
Nvidia's peers are flying
There are further indications that the AI chip market is still experiencing healthy demand: Some of Nvidia's peers in the semiconductor industry that recently reported earnings -- AMD and Intel -- exceeded analyst expectations. AMD's top line grew by 38% year over year to $10.3 billion. The company's data center unit was the primary growth driver, with sales from that segment soaring 57% year over year to $5.8 billion, partly due to increased GPU (Graphics Processing Unit) shipments.
AMD's shares jumped after earnings. Intel also beat on earnings, posting first-quarter revenue of $13.6 billion, up 7% year over year. The company credited strong demand for its CPUs (Central Processing Units) amid the shift from training models to inference and agentic AI (autonomous AI systems that can plan and execute tasks with little human supervision). In other words, Intel's performance also underscores the broader strength and sustained growth of the AI sector.
Nvidia is trading at reasonable levels
Even if Nvidia delivers a beat-and-raise and quarter, the market's reaction might be fairly muted if that's already baked into the stock price. In my view, that's not the case. Nvidia is trading at 26.5x forward earnings, versus the average of 24.4x for information technology stocks. Nvidia's shares appear reasonably valued, particularly given its dominant market share and robust competitive moat. It's also worth pointing out that while Nvidia has performed pretty well this year, it has lagged both AMD and Intel by a wide margin.
Perhaps this isn't a fair comparison. Nvidia is a much larger company. However, when considering the heavy spending from hyperscalers, the strong results from AMD and Intel, and Nvidia's comparatively poor stock market performance this year and attractive valuation, the stage appears set for another blowout quarter. That's why investors should consider purchasing the company's shares before May 20.
