What to watch for as 'elite, transformational' Nvidia reports earnings, according to Wedbush

• As Nvidia gets ready to report earnings, Wedbush recommends evaluating the tech stock differently.
• Like other big tech stories, investors could miss out if they focus too much on P/E ratios.

Nvidia is set to report earnings after the closing bell on Wednesday, and according to Wedbush, Wall Street should be thinking a bit outside the box when it comes to the artificial intelligence leader.

"For the elite, transformational tech stories such as Nvidia and the AI Revolution investors must see the forest through the trees to where this spending wave (and estimates) can head over the next 3 years," analysts wrote in a note on Tuesday.

The lesson, Wedbush says, can be taken from the transformational tech stocks of the last decade: Amazon, Netflix, Meta, Apple, Alphabet, and other mega-cap giants. The investors who missed out on those stocks' massive gains were those who "dogmatically" evaluated the stocks using a price-to-earnings ratio, which isn't as important a metric when you're dealing with a unique tech story.

Wedbush's bull thesis on the AI revolution is instead buttressed by the argument of a massive spending wave on the horizon.

"We believe 60%-70% of enterprises will ultimately head down the AI use case path as we estimate a $1 trillion of incremental AI spend over the next decade."

For Nvidia's Wednesday report, Wall Street is expecting another "beat and raise," analysts wrote. It's largely for the same reason the stock has been racing upwards thus far: AI models need a specific type of chip — GPUs — and Nvidia is a stalwart in the game. Wedbush is "laser focused" on the trajectory of GPU orders and demand flow.

The key, therefore, is to look at the pace of data-center-AI-driven spending, they noted, and the cash that is gushing into the sector is far off its peak.

"We believe peak spending is still ahead for the AI market as many enterprises head down the AI use case path over the next few years and we are expecting more good news from the Godfather of AI this week."

Nvidia's stock is already up 51% this year, with a valuation more than the Chinese stock market. It is now the third-largest US company.

"The AI Revolution starts with Nvidia and in our view the AI party is just getting started," the analysts said.