Nvidia expects revenue to grow by 70% over the next year

For the first time ever, Nvidia offered a long-term growth forecast in its Wednesday earnings call. The AI chipmaker said it's expecting revenue to grow by 70% next year, compared to the 44% growth that analysts had been expecting.

Companies don’t have to issue long-term guidance, but Phillip Stocken, accounting professor at Dartmouth’s Tuck School of Business, said it’s valuable when they do.

“It's vital to investors, to analysts, to you and I as retail investors to understand what Nvidia is doing,” Stocken said.

Knowing what companies expect can help investors decide whether and how much to invest — though it is important to take their projections with a grain of salt.

“There is evidence that forecasts tend to be slightly upwardly biased,” Stocken said. “Not much, but they are biased … because they believe that forecast is attainable.”

But typically, forecasts are in the ballpark, according to Todd Kravet, accounting professor at the University of Connecticut.

“Revenue is a pretty straightforward number,” Kravet said. “It's easy to interpret, and it's easier to forecast, and so that's why I would expect it to be pretty reliable.”

If a company’s forecast is not reliable, there can be big consequences, said Amy Hutton, accounting professor at Boston College.

“If you make a statement like, ‘we expect 70% growth,’ and you don't achieve 70% growth, and you don't along the way update investors about why you're not going to achieve it, you could get sued,” Hutton said.

A company’s stock can also take a hit if it drums up high expectations and doesn’t meet them, which is why, Hutton said, it’s actually common for companies to under-promise.

“They will spend time throughout the year walking down analysts' expectations, so when they get to that final year-end announcement, they beat the expectations,” she said.

(And get a bump in their stock price.)