Big Tech has seen quite the rally, adding $2 trillion dollars in market value recently. Nvidia (NVDA) is one of the Magnificent Seven that has not seen much of a slowdown, despite the recent restrictions from the Biden administration on certain chip exports to China. Several competitors have jumped on the bandwagon, announcing new AI chips in production but will that be enough to catch up to this tech giant? Investors will learn more when the company releases its third quarter earnings on Tuesday, November 21, after the market close.
Paul Meeks, The Citadel Professor, joins Yahoo Finance to preview the chipmaker's report.

Meeks is concerned that there will be a repeat of what happened when Nvidia released its second quarter results, saying the company "crushed the numbers and gave pretty good guidance. After the call, folks raised their numbers all over the street, yet the stock took quite a hit."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JULIE HYMAN: Paul, when you look at NVIDIA and how it's setting up here, the stock is up, what, about 240% year-to-date. Everybody views it as sort of the uncontested leader in AI here. What are we looking for specifically from the company in this report?

PAUL MEEKS: So I don't think there's any question that they'll upside the consensus estimates. And if you're keeping score at home, that's $3.10 in non-GAAP EPS, and 14.9 billion in sales. But I am worried about this. I am worried that we have a repeat this quarter of what we had last quarter, where they also crushed the numbers and gave pretty good guidance. After the call, folks raised their numbers all over the street, yet the stock took quite a hit.

And so I think the expectations are so high for NVIDIA. And we do have some potentially scary things, not in the near term, not in the intermediate term, but in the long term, with the slowdown of purchases to China. Can we ever resolve that export mess?

And also, what happens when the cloud hyperscalers get their fill of these NVIDIA GPUs for AI, and actually go into a pause mode where they digest their purchases? Because right now they are buying every one they can get. And these are very high average selling prices and incredibly high margins for NVIDIA, so I just worry about the reaction, not the fundamentals that we'll see reported next Tuesday afternoon.

JOSH LIPTON: And Paul, you did touch, though, on one subject, which is going to for sure come up on the call, and investors in the street, they're going to want more clarity on, which is China. You know, it's an important market for NVIDIA, but at the same time, Paul, we see these tightening of US restrictions on chip exports. How big an opportunity is China for Jensen Huang and his team over at NVIDIA long-term there?

PAUL MEEKS: So long-term, it should be at least 25% of the sales in the data center, so it's significant. And if this goes to zero or somewhere close to zero, that is going to be meaningful, and that'll really cause a downgrade in the longer-term estimates. Now this year, the company is going to do about $10 in non-GAAP EPS, it's about a triple from last year. Next year, the forecast is for $15 or $16. I think that all is well there.

I expect them to continue to upside next year. But yes, over a long term, you hit the nail absolutely on the head. What happens to China? Can they continue to tweak their projects and sneak them past the goalie, which is the folks that are looking at holding back those purchases for defense use and Chinese products? But we'll see. Right now, it's not good for the long term. In the meantime, I think we're OK for the short to intermediate term.