Nvidia Corp. (NVDA), a leading chipmaker specializing in artificial intelligence (AI) and graphic processing units (GPU) used in high-performance computing and cloud infrastructure, has seen its earnings and revenues tumble in recent quarters on slowing demand and weaker economic conditions in China. While the company’s shares have outpaced the broader market, rising more than 23% year to date, they are still more than 40% below last year’s highs and investors will be looking to see signs of improving fundamentals as the company reports earnings in two weeks.

What Nvidia Investors are Watching For

Weaker economic growth in China and last year’s crash in the cryptocurrency market has depressed global demand for chips. Investors will be looking for any sign of a rebound in sales, which could provide a glimmer of hope that demand is finally picking up again. However, the ongoing U.S.–China trade war that doesn’t look like it will be resolved any time soon will continue to weigh on China’s economy and could pressure the U.S. economy, which is starting to show signs of slowing. Investors will also be looking to see growth in the company’s AI business and for signs on how the company will deal with increasing competitive threats.

Analysts’ 2Q Estimates

Analysts are expected earnings per share (EPS) to be down 41% from the year-ago quarter. Revenues are expected to be down 18.5% from last year. Despite expectations of negative growth for the year as a whole, analysts are forecasting a return to positive growth next year.

The decline in revenues is a slight improvement from last quarter’s 31% year-over-year decline, which also marked Nvidia’s second consecutive quarter of revenue declines after a string of consecutive gains going back as far as 2014. The company’s profits fell as much as 68%, according to its regulatory filings.

AI to Boost Long-Term Growth Prospects

Earlier in the year, Nvidia’s Chief Executive Officer Jensen Huang stressed that the company’s falling revenues would be short-lived and that growth in demand for the company’s graphic chips would begin to pick up again later in the year. The recent slump has been largely due to weakening economic conditions in China and the disappearance in demand from cryptocurrency miners as the market crashed last year. 

But the company is confident that growth in cloud computing and especially AI technology will boost its business over the long term. In anticipation of that growth, Nvidia made its largest acquisition to date, Mellanox Technologies Ltd., which Nvidia purchased for around $6.9 billion at the end of April. The purchase is broadly seen as an attempt by the chipmaker to increase its competitiveness in AI computing as the market for AI technology heats up.

Rising Competition

Nvidia, however, won’t be the only company benefiting from the growth in cloud computing and AI technology. Increasing competition from firms like Advanced Micro Devices Inc. (AMD) is likely to lead to a loss of market share for Nvidia, according to Susquehanna Financial Group analyst Christopher Rolland. “Navi [AMD’s new graphics chip] will likely hep AMD gain share over the next year,” he wrote, according to Barron’s. “We believe Nvidia…now faces competitive issues over the next year.”