Taking Stock of the Earnings Picture

This week's earnings focus is on Nvidia, expected to report EPS of 85 cents on $42.6 billion in revenues, a +39.3% and +63.7% year-over-year change, respectively, though estimates have been revised downward due to margin concerns over the Blackwell GPU transition; demand for Blackwell is reportedly strong, especially from hyperscalers and sovereign wealth funds. Costco is also highlighted, expected to report $4.25 EPS on $63.1 billion in revenues, with the company well-positioned to navigate the tariff environment due to its domestic sourcing.

Analysis

Nvidia's upcoming earnings are a key market focus, with expectations of 85 cents EPS on $42.6 billion in revenue, representing significant year-over-year growth of +39.3% and +63.7% respectively, despite recent downward estimate revisions from 93 cents two months prior due to concerns about near-term margin pressure during the transition from Hopper to the new Blackwell GPU. However, indications suggest a smooth Blackwell production ramp-up, with CEO Jensen Huang noting demand from the four largest hyperscalers is three times higher than for Hopper in the comparable prior-year period, and new datacenter deals with sovereign wealth funds in the UAE and Saudi Arabia suggesting a substantial future growth runway. While Nvidia's stock has underperformed year-to-date amid soured AI sentiment following the DeepSeek announcement, its valuation is considered less extreme than in previous years. Concurrently, Costco is anticipated to report strong results with $4.25 EPS on $63.1 billion in revenue (+12.4% and +7.9% YoY, respectively), supported by upward estimate revisions and its strategic positioning with a loyal, higher-income customer base and significant domestic sourcing (over 70% of U.S. revenues, two-thirds of U.S. merchandise sourced domestically), insulating it somewhat from tariff uncertainties. Costco's fiscal year 2025 earnings and revenues are projected to grow +11.5% and +7.9% respectively. In the broader retail sector, Q1 earnings for 28 S&P 500 retailers (excluding some) are up +11.2% on +5% higher revenues, though EPS (60.7%) and revenue (57.1%) beat rates are below historical averages. Notably, excluding Amazon's +42.6% Q1 earnings growth, the retail group's earnings declined -5% on a +3.8% revenue gain, highlighting margin pressures for many. Overall S&P 500 Q1 earnings for 478 members are up +11.6% on +4.3% revenue, but EPS (74.3%) and revenue (63%) beat rates also trail 5-year averages, and Q2 2025 estimates are seeing larger-than-usual downward revisions, though Tech sector estimates show signs of stabilization.

Key Decisions for Investors

• Investors should closely monitor Nvidia's commentary on Blackwell GPU transition margins and the sustainability of hyperscaler demand, balancing current estimate pressure against strong long-term growth indicators from new markets like sovereign wealth funds.
• Costco's robust fundamentals, upward earnings estimate revisions, and defensive characteristics in an uncertain tariff environment make it a potentially resilient holding; its consistent performance and projected growth for FY25 warrant attention.
• Exercise caution and selectivity within the broader retail sector, recognizing that Amazon's strong performance significantly influences aggregate figures and masks underlying margin pressures for other retailers; scrutinize individual company fundamentals.
• Given the overall trend of declining Q2 S&P 500 earnings estimates and lower-than-average beat rates, investors should maintain a cautious outlook on near-term market-wide earnings growth, while noting potential stabilization in Tech sector estimates.