NVIDIA's Earnings Preview Highlights Growth Slowdown and Strategic Risks Amid High Valuation

What happened

NVIDIA is set to report Q4 earnings with consensus expecting 68% year-over-year revenue growth, but this marks a deceleration from prior years' explosive rates, indicating normalization in AI-driven demand. Market enthusiasm has tempered as the company scales back a $30 billion investment in OpenAI and enters the lower-margin PC notebook SoC market, reflecting strategic shifts that may dilute profitability. The DeepValue report notes NVIDIA trades at $189.82 with a WAIT rating, priced at 46.6x P/E for sustained hyperscaler capex and mid-70% gross margins, yet faces significant risks like customer concentration and policy shocks. Recent filings reveal vulnerabilities, including a $4.5 billion charge from export controls and reliance on four hyperscalers contributing over 60% of revenue, which could amplify downside if capex slows. This earnings report will critically test whether NVIDIA can maintain growth and margins amidst these headwinds, with implications for its premium valuation.

Implication

A modest earnings beat is unlikely to justify the current price, given the stock's embedding of perfect execution and sustained hyperscaler spending, which are now in question due to slowing growth. The strategic move into lower-margin PC SoCs and scaled-back OpenAI investment signal a shift that could pressure gross margins, challenging the recovery to mid-70% levels essential for valuation support. Concentrated customer reliance and past multi-billion-dollar policy shocks highlight non-linear downside risks that aren't fully priced in, especially with $30.8 billion in non-cancellable supply commitments. If hyperscalers cut capex guidance or margins falter, the financial buffer from cash flows may be eroded by aggressive buybacks and obligations, increasing drawdown potential. Therefore, a cautious approach is warranted, with investors monitoring hyperscaler capex trends and margin stability over the next quarters rather than chasing short-term earnings surprises.

Thesis delta

The earnings preview reinforces the existing WAIT thesis by underscoring growth deceleration and strategic risks that align with the report's concerns about valuation and downside exposure. It does not shift the core investment call but highlights the need for heightened vigilance on execution and external catalysts, such as hyperscaler capex and margin trends. Consequently, the thesis remains unchanged, advising patience for a better entry point or clearer signs of risk mitigation before considering a position.