Prediction: The Puzzle Pieces Are in Place for Nvidia to Disappoint Wall Street on Nov. 19

For most investors, earnings season is the most exciting period of each quarter. This is the six-week time frame where a majority of S&P 500 companies unveil their operating results, which serves as a health barometer of corporate America (and Wall Street) for investors.

But not all earnings reports are equal. No company has put the stock market on its back and lifted it to new heights quite like the face of the artificial intelligence (AI) revolution, Nvidia (NASDAQ: NVDA). Wall Street's largest publicly traded company recently became the first to ever reach the $5 trillion plateau, with the multitrillion-dollar opportunity presented by AI fueling its near-parabolic ascent.

Nvidia's highly anticipated fiscal 2026 third-quarter operating results are set to be released following the closing bell on Wednesday, Nov. 19. While the expectation is for Nvidia to blow Wall Street's consensus sales and profit forecast out of the water, an argument can be made that the puzzle pieces are in place for the company to disappoint investors.

Image source: Nvidia.

Nvidia's early stage competitive advantages will be on full display on Nov. 19

But before diving into these various catalysts, it's important to lay the foundation of how Nvidia became the most important company on Wall Street.

Nvidia's claim to fame is its market-leading AI-graphics processing units (GPUs). These are the brains of AI data centers that allow for split-second decision-making without the need for human intervention. Though estimates are all over the board, as you'd expect with any new technology, some analysts believe Nvidia accounts for more than 90% of the AI-GPUs currently deployed in high-compute data centers.

Being the preferred choice in enterprise data centers is a function of its superior hardware, as well as GPU scarcity.

CEO Jensen Huang has established an aggressive innovation cycle that intends to bring a new advanced GPU to market annually. Thus far, no external chipmakers have come particularly close to matching the compute capabilities of Nvidia's three generations of GPUs (Hopper, Blackwell, and Blackwell Ultra). Assuming Nvidia can stick to Huang's timeline and roll out a new AI-GPU annually, it shouldn't have any trouble maintaining its clear-cut compute advantages.

Nvidia has also benefited from GPU demand handily outpacing supply. The law of supply and demand tells us that when the demand for a good or service outpaces its supply, the price of that good or service will climb until demand tapers. Nvidia has been enjoying a hefty pricing premium for its AI hardware, which in turn sent its gross margin above 70%.

The other factor that's really helped Nvidia rise to the top is its ability to land major orders from Wall Street's most-prominent businesses. Most members of the "Magnificent Seven" are utilizing Nvidia's chips for their data centers. Further, Nvidia announced a strategic partnership with privately held OpenAI, the company behind large language model chatbot ChatGPT, in September.

These competitive edges have Nvidia on track to report close to $55 billion in sales for its fiscal 2026 third quarter (up 56% from the prior-year period), and a profit of $1.25 per share, which works out to about $30.4 billion.

But there's more to impressing Wall Street and investors than just surpassing headline estimates.

Image source: Getty Images.

Expect Nvidia to disappoint investors on Nov. 19

Based on what history tells us, Nvidia is likely to leap over Wall Street's consensus estimates. But as we saw with AI-data mining specialist Palantir Technologies last week, investor expectations are sometimes too lofty.

For example, it would be unwise to ignore the direct and indirect competitive pressures that are beginning to build for Nvidia. Although Nvidia retains top-notch AI-data center market share, external competitors are ramping up production and selling their GPUs at a notably lower price than what Wall Street's largest publicly traded company is charging for its AI hardware. We've already witnessed some businesses choosing AI hardware from the likes of Advanced Micro Devices instead of waiting in line for an order to be fulfilled, or paying a premium for Nvidia's chips.

But what's arguably a greater threat to Nvidia is internal competition. Most members of the Mag 7 are developing GPUs and AI solutions to deploy in their data centers. Even though this hardware can't challenge Hopper, Blackwell, or Blackwell Ultra on a compute basis, and it won't be sold externally, it's on track to take up valuable data center real estate that Nvidia isn't going to win.

What's more, Nvidia's customers developing their own AI hardware will steadily minimize the AI-GPU scarcity that's driven the company's pricing power and pushed its gross margin above 70%. While Huang expects demand for next-gen AI chips to support a premium price point, the possible rapid depreciation of prior-generation GPUs could drag down its pricing power and/or delay future upgrade cycles.

Nvidia is also combatting historical valuation headwinds.

NVDA PS Ratio data by YCharts. PS Ratio = price-to-sales ratio.

Dating back to the advent and proliferation of the internet, companies on the leading edge of a next-big-thing innovation have commonly topped out at price-to-sales (P/S) ratios in the range of 30 to 40, with a little bit of wiggle room at each end. Nvidia entered the previous week with a P/S ratio that neared 31. Even with its breakneck growth rate, history makes clear that Nvidia has virtually no chance of maintaining this aggressive valuation premium for an extended period.

Furthermore, history teaches investors that every next-big-thing trend and game-changing innovation dating back three decades has navigated its way through a bubble that eventually popped. This occurs because investors regularly overestimate the early stage utility and adoption rate of a new innovation. With businesses still figuring out how to optimize their AI solutions, it appears likely that artificial intelligence is the next in a long line of overhyped early innovations.

Long story short, there may not a revenue or profit beat large enough on Nov. 19 to match the already lofty expectations of investors.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.