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Nvidia (NVDA) comes report its results for the second quarter after the closing bell next Wednesday, setting up what will be the AI ​​hype cycle’s biggest test yet.

During this AI gold rush, companies around the world looking to cash in have turned to Nvidia’s GPUs to power new AI software and platforms.

Currently, tech companies of all sizes are doing everything they can to get their hands on Nvidia chips. During Tesla’s (TSLA) Q2 profit callCEO Elon Musk told analysts that the automaker will take as many Nvidia graphics processors as the company can produce.

That kind of demand is also why Nvidia blew away Wall Street’s expectations for its Q2 guidance during its most recent earnings call. At the time, analysts were expecting revenue of $7.2 billion, but Nvidia said it will take in about $11 billion in the quarter — a 64% jump over a year ago — which Wall Street analysts now expect next week.

The Street also expects earnings of $2.07 per share, up 306% year-over-year. Nvidia is used to huge numbers, but these set high expectations for next week’s report, and the stock is already rising.

“What Nvidia reports in its upcoming earnings release will be a barometer of the entire AI hype,” Forrester analyst Glenn O’Donnell explained. “I expect the results to look really outstanding because the demand is so high, and that means Nvidia can get even higher margins than they would otherwise.”

But the sky-high expectations mean that if the company doesn’t deliver, it could put a serious damper on the AI ​​explosion and send a shockwave through AI deals from Microsoft and Google to Meta and AMD.

Wall Street is all in on Nvidia

In early trading in New York on Tuesday, Nvidia’s stock hit $445. Year to date, the company’s shares have risen a staggering 204%. And Wall Street analysts are still upgrading the stock.

The story continues

In a research note on Tuesday, Wells Fargo’s Aaron Rakers raised his price objective on Nvidia from $450 to $500. Baird’s Tristan Gerra moved his price target on the stock from $475 to $570, adding that “AI demand is increasing at all levels: individuals, enterprises, hyperscalers.”

Morgan Stanley’s Joseph Moore offered a similarly rosy view of the company, writing in a research note that “NVIDIA remains our top pick, against a backdrop of the massive shift in spending toward AI, and a fairly exceptional supply-demand imbalance that should persist for the next several quarters ; we think the recent sale is a good starting point.”

UBS’s Timothy Arcuri also raised his price target on Nvidia, writing in a note that the company is “literally acting as the ‘kingmaker’ as a huge wave of capital and new funding vehicles chase new AI software and specialized cloud infrastructure models.”

Nvidia is the preeminent manufacturer of both the powerful graphics chips needed to run AI programs and the software needed to develop those AI platforms. And the company has been preparing for this moment for years, researching and working on its AI capabilities long before Wall Street jumped on the AI ​​craze with the launch of OpenAI’s ChatGPT generative AI platform in late 2022.

Since then Microsoft (MSFT), Google’s parent alphabet (GOOG, GOOGLE), Meta (META), Amazon (AMZN), Intel (INTC), AMD (AMD), and a cadre of AI-adjacent companies have positioned themselves as AI powerhouses.

Nvidia is powerful, but not invincible

While Nvidia is helping drive the AI ​​train, it faces a big problem at the moment. It simply cannot deliver as many chips as customers want.

Taiwan Semiconductor Manufacturing Company (TSM) is Nvidia’s choice when it comes to building its chips, but the manufacturer’s capacity is stretched as orders continue to pile in from Nvidia. According to Arcuri’s note, recent demand has pushed lead times for Nvidia’s critical H100 chips to six to nine months.

During Tesla’s earnings call, Musk said that Nvidia has too many customers competing for its products. And while the company has prioritized some of Tesla’s orders, Nvidia can’t provide as many chips as the electric car maker demands. As a result, Tesla is building its own supercomputer with its own AI chips to meet its needs.

Not only is Nvidia facing increased lead times for its AI products, but it’s also looking to keep rivals Intel and AMD off its back. While the company has built a head start thanks to its early investments in AI, the semiconductor business is notoriously competitive, and as Intel has shown, no industry precedent is certain.

“Nvidia is not invincible,” O’Donnell said. “Other companies like AMD and Intel and so on can and will come and steal some of that share. But Nvidia has so much momentum right now that it’s going to be hard to stop them. Not impossible, but hard.”

Now we just have to see what Nvidia has up its sleeve when they report their results on August 23.

Daniel Hawley is a technical editor at Yahoo Finance. Follow him @DanielHowley.

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