Nvidia's earnings report will be released tonight, a crucial battle in the AI bull market. How should one trade?

Nvidia's earnings report this quarter will most likely be another strong one, but the market's question is no longer whether it "exceeded expectations," but whether it can provide sufficient answers after exceeding expectations. From option pricing to institutional disagreements, from controversies over revolving financing to power bottlenecks, this earnings report is becoming a litmus test for whether the AI bull market can enter the next stage.

Nvidia will release its Q2 FY2027 earnings report after the market closes on Wednesday, Eastern Time. Wall Street consensus expects quarterly revenue of approximately $92 billion, nearly doubling year-over-year; adjusted earnings per share are expected to be $2.09, and data center revenue is expected to be approximately $85.4 billion. Jefferies predicts revenue will exceed consensus expectations, reaching $95 billion; Citigroup also raised its forecast and maintained its $300 target price. However, Goldman Sachs warned that with the stock price already rising over 12% in August, "better-than-expected earnings plus guidance adjustments" are insufficient to drive further price increases. It also requires the simultaneous release of three positive factors: improved profitability for hyperscale cloud providers, controllable customer financing, and large-scale capital returns.

The pricing in the options market reflects this caution. According to ORATS data, Nvidia's implied volatility before earnings was approximately 5.4%, the lowest since August 2021, and significantly lower than the historical average of 7.4% over the past 12 quarters.

ORATS founder Matt Amberson pointed out that the actual stock price volatility in the past eight earnings reports has been less than the implied value of the options. "Option buyers have been paying too high a premium for this event, and the price has begun to correct." This means that for investors who are bullish on the AI theme, relatively cheap options provide an asymmetric participation window; however, if management cannot answer the long-term questions that the market is truly concerned about, the expectation of low volatility may also be broken.

Divergent Earnings Expectations: Both Bulls and Bears Have Confidence

Sell-side institutions are generally optimistic about the fundamentals for this quarter, but their differences lie in the stock price trajectory after the earnings report is released.

Jefferies projects Nvidia's July quarter revenue at $95 billion and its October quarter guidance at approximately $108 billion, both higher than the market consensus of approximately $91.9 billion and $103.7 billion, respectively. Morgan Stanley is more conservative, projecting approximately $91.2 billion for the July quarter and approximately $102.3 billion for the October quarter, but believes that quarterly revenue could still continue to increase sequentially by approximately $10 billion. Citi maintains its buy rating and $300 price target, noting that Nvidia has secured HBM memory supply for 2026-2027, ensuring stable delivery.

Morgan Stanley maintained its "overweight" and top pick rating with a target price of $288, noting that Nvidia's current FY28 P/E ratio of approximately 17 is not expensive compared to its own historical levels, semiconductor peers, and the broader market. However, the bank also emphasized that in the past four quarters, even when Nvidia delivered strong results, its stock price still reacted negatively the following day, indicating that the market has come to regard "better-than-expected" results as the default scenario.

Market forecasts also reflect this split: there is a 96% probability that Nvidia will report earnings that exceed expectations, but only a 43% probability that the stock price will close above $220 after the earnings report.

Rubin Cycle: Key Words for the Next Valuation Narrative

In the short term, demand for Blackwell remains strong, with improvements in Microsoft and Amazon Cloud businesses, as well as OpenAI and SpaceX's long-term commitment to computing power, continuing to support confidence in data center revenue. However, the market has already set its sights on the longer term— whether the Rubin platform can unlock the next round of growth from a higher base will be the core topic of this conference call.

Jefferies believes Rubin's ramp-up speed may be significantly faster than Blackwell's initial stages. A key reason is that Rubin retains the 72-GPU Oberon NVL72 rack form factor, allowing it to reuse the liquid-cooled data center deployment and manufacturing foundation accumulated from the GB200 and GB300. The new generation design also significantly reduces manual cabling and conduit installation; management previously mentioned that compute tray assembly time is expected to be reduced from approximately 2 hours to 5 minutes. The significance behind this is that Nvidia is upgrading its AI chips into a replicable, scalable "AI factory system."

Jefferies projects that Rubin/R200 will account for approximately 12% of Nvidia's GPU revenue in Q3 of fiscal year 2027, rising to over 40% in Q4, and becoming the dominant revenue source in Q1 of fiscal year 2028. If this trajectory materializes, the market's valuation logic will shift from "how long can the Blackwell cycle continue" to "can Rubin initiate even larger-scale growth."

Revolving financing: the most controversial gray area

The most likely focus of the market in this earnings report is the increasingly complex financing arrangements between Nvidia and its hyperscale customers.

According to Jefferies, Nvidia has reached an agreement with SB Energy to build and operate the PORTS-Pike Technology Campus in Ohio, which will be leased to OpenAI for 20 years, with Nvidia serving as the exclusive computing power provider. Nvidia will provide credit support for the initial 4.25GW of IT capacity and hold an option for the remaining 3.75GW, while also investing $1.5 billion in SB Energy. Nvidia stated that each generation of systems deployed at this site corresponds to approximately 1.5 million GPUs, generating $150 billion to $200 billion in revenue; OpenAI's existing and planned commitments total approximately 12GW, scalable to 16GW, corresponding to approximately $600 billion in Nvidia's computing power purchases by 2030.

However, Morgan Stanley data shows that the five largest hyperscale cloud service providers, along with Nvidia and Broadcom, have committed over $3.1 trillion in guarantees, leases, and other financial support to drive AI infrastructure spending by other companies. This "supplier revolving financing" model has become a key question for institutions like Goldman Sachs: how much of this demand is actually customer-driven capital expenditure, and how much needs to be driven by Nvidia through credit support or investment?

Morgan Stanley believes that financing, market share, and gross margin are the three most pressing points of contention for investors. If management fails to provide clear accounting disclosures regarding contingent obligations and residual value commitments, market concerns about "trading growth for balance sheet gains" will be difficult to dispel.

Gross profit margin and electricity: two hidden pressure lines

Gross margin is one of the core supports for Nvidia's valuation premium.

Morgan Stanley expects the company to maintain its 2027 fiscal year gross margin forecast of "mid-70%", indicating that short-term pressure is manageable. However, medium- to long-term pressures cannot be ignored: costs in HBM, DRAM, advanced packaging, substrates, and front-end wafers are still rising, and new product ramp-up is usually accompanied by yield rate and supply chain integration challenges.

Morgan Stanley cautions that the market consensus on a significant rebound in gross margins in the second half of fiscal year 2028 may be slightly overly optimistic. Furthermore, Nvidia has notified major customers such as Microsoft, Google, and Oracle that server prices equipped with Vera Rubin and Grace Blackwell chips will increase by more than 15% early next year, with rising HBM memory costs being the primary driver.

Electricity supply is also becoming a constraint that cannot be ignored.

Jefferies points out that the gap between anticipated chip demand and grid supply capacity is widening. Large cloud vendors are increasingly partnering with utilities to build dedicated gas-fired power plants, while cutting-edge AI labs are increasingly using "post-metering" power solutions to bridge the time lag between grid connection and computing power deployment. Gas turbines, backup power supplies, and fuel cells are all being developed, but equipment delivery cycles, grid connection approvals, and local regulations will all impact data center construction progress. This means that the conversion of orders into revenue will become less linear.

Competitive Landscape: Structural Risks in Market Share

Beyond the macro narrative, Nvidia's approximately 90% market share in AI accelerators is facing attacks from multiple directions. Cloud giants like Google and Meta are accelerating the development of their own AI chips; according to reports, OpenAI's "Jalapeño" inference chip, jointly developed with Broadcom, has surpassed Nvidia Blackwell in some benchmark tests; and emerging chip companies like Cerebras Systems, which went public this year, are also vying for market share.

Bespoke Investment Group points out that Nvidia's stock performance has become significantly decoupled from the semiconductor sector, noting that "semiconductor stocks have repeatedly moved in the opposite direction to Nvidia in recent months." The PHLX Semiconductor Index has been sluggish since its high in late June, and Nvidia's previous seven-day losing streak was the longest consecutive decline since the start of the current bull market in October 2022.

These structural changes in the competitive landscape may become risk variables with a more profound impact on Nvidia's long-term profitability trajectory than just quarterly financial figures. Management's statements regarding the competitive situation will be the part investors least want to miss during the conference call.

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