One of the most profound changes in the technology landscape over the past couple of years has been advances in artificial intelligence (AI). There is a strong argument that the emergence of artificial intelligence early last year was one of the biggest sparks that led to the current bull market rally. ChatGPT heralded the arrival Generative artificial intelligenceSince its release in November 2022, it has become… Standard & Poor’s 500 It jumped 46%, instead Nasdaq Composite It is up 67% (as of this writing).
While there were many who benefited from these secular tailwinds, the most notable were: Nvidia (Nasdaq: NVDA). In short, the company Graphics processing units (GPUs)which was originally developed to craft lifelike images in video games, has demonstrated similar skill in running artificial intelligence models.
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The resulting run on Nvidia chips produced stunning financial results and sent the stock into the stratosphere. Since the beginning of last year, Nvidia stock has risen more than 900% (as of market close on Thursday), turning the company into a stock market darling.
Nvidia has a lot riding on its financial results next week. Let’s take a look at the run-up to this critical quarter, what Wall Street is saying, and what investors should expect.
As technologists began to understand the implications of generative AI in early 2023, demand for Nvidia’s AI-based processors rose from zero to 60 in just months. And in the company’s second quarter of fiscal 2024 (ending July 30), results were nothing short of impressive. Nvidia generated record revenue of $13.5 billion, up 101% year-over-year, while adjusted earnings per share (EPS) of $2.70 rose 429%. GAAP earnings per share were even more surprising, rising 854%.
The next four quarters were equally impressive, with record sales and triple-digit profit growth in each. Nvidia’s fiscal 2025 second quarter (ending July 28) was the latest in this series. Record revenue of $30 billion jumped 122% year over year, while adjusted earnings per share of $0.68 rose 152%. It’s worth noting that investors had concerns about Nvidia’s gross profit margin, which fell, but that was from a record high set in the second quarter.
The smart investors knew that the company’s triple-digit streak would eventually come to an end, and management suggested it was time. For the soon-to-be-announced third quarter (ending October 29), Nvidia is on track for revenue of $32.5 billion, representing 79% year-over-year growth.
This would represent a clear slowdown compared to its recent growth rate, and the stock was initially sold off on the news. However, in the three months since that report, cool heads have prevailed, and Nvidia stock has returned to record highs.
The biggest driver of Nvidia’s future results is the upcoming release of its AI-centric Blackwell architecture. After a slow start due to production issues, management confirmed that the chips are on track to ship by the end of the year. Demand for the processors has been “insane,” CEO Jensen Huang said in an interview. He went on to say: “Everyone wants to have the most, and everyone wants to be first.” “In the fourth quarter, we expect to charge several billion dollars in revenue from Blackwell,” CFO Colette Kress previously said.
Nvidia’s strong track record in innovation has kept the company at the forefront of the AI revolution, and it doesn’t look like that’s going to change anytime soon.
As Nvidia’s cash report approaches next week, Wall Street remains decidedly bullish. Analysts’ consensus estimates are for revenue of $33 billion — or roughly 82% growth. Nvidia has a track record of beating its own and Wall Street’s expectations, so the results could be more robust.
Of the 63 analysts offering an opinion on Nvidia so far in November, 94% rate the stock a buy or strong buy, and none recommend a sell. The average price target of $157 suggests the stock has an upside of 11%. The consensus Buy rating and price target above the current stock price indicate that analysts believe Nvidia shares have additional upside, but not to the same degree as they have over the past year.
However, over the past few days and as Nvidia’s earnings report approaches, there has been a mad rush by analysts to update their models, resulting in several price target increases this week (12, by my count). Each of these target price increases was higher From the current consensus of $157, indicating that Wall Street is becoming more bullish.
Analysts were almost unanimous in their comments, citing the rapid adoption of artificial intelligence and the construction of more powerful data centers to handle increased demand. Furthermore, most analysts believe Nvidia was conservative in its guidance, giving the company room to beat expectations.
One of the most bullish positions comes thanks to Melius Research analyst Ben Reitzes. He maintained a Buy rating on the stock and increased his price target to $185. “Although it wasn’t possible, we are more excited about Jensen Huang’s next chip than we have ever been before,” he wrote in a note to clients earlier this week.
For investors inclined to short the stock, the analyst says: “Giving up on Nvidia here after its success – Hopper (the artificial intelligence chip) – is like giving up on Apple on the iPhone 1 or 2.” He went on to describe this as a “once-in-a-lifetime opportunity,” saying that Nvidia “should have it.”
Together, this suggests that Wall Street remains remarkably optimistic about Nvidia’s prospects — and with good reason. Even the most conservative estimates regarding the market opportunity represented by generative AI generally start at around $1 trillion, and many are much higher. Competitors have not yet been able to develop a solution that even comes close to Nvidia in terms of performance, so its GPUs are building the foundation for the AI revolution.
To be clear, I’m bullish on Nvidia and I think the stock has a lot to go up from here. However, I am also aware of the volatility that is sure to follow in the coming weeks and months. If you have any doubts, remember that earlier this summer, Nvidia stock lost 27% of its value in just a few weeks, only to bounce back to hit all-time highs.
Finally, there is the evaluation to consider. Wall Street expects Nvidia to generate earnings per share of $4.16 in fiscal 2026, which begins in late January. This means the stock is currently selling for roughly 34 times next year’s earnings. While that’s a slight premium, consider the following: Nvidia’s revenues increased 868% over the past five years, while its net income rose 1,650%. This has sent stock prices up 2610% (as of this writing). This clearly shows why Nvidia deserves the reward.
We’ll know more after Nvidia reports its results after the market closes on Wednesday, November 20.
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Danny Vina He has positions at Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has Disclosure policy.
Should you buy Nvidia stock before November 20th? Wall Street has a compelling answer. Originally published by The Motley Fool