Will Nvidia’s Blockbuster Results Be Enough to Send the Stock Higher?

By Investor Empires On Nov 30, 2024

Nvidia (Nasdaq: NVDA) It has been in amazing shape on the stock market in 2024, thanks to the amazing growth recorded by the company quarter after quarter, which explains why the market is waiting for the results of the third quarter of fiscal year 2025 (for the three months ending on October 27) with bated breath.

The semiconductor giant’s report was released on November 20, And it is not surprisingIt achieved stronger than expected results on the back of good demand for graphics processing units (GPUs) that are used in data centers for training and deployment. Artificial Intelligence (AI) Models. However, it appears that investors’ initial reaction to the company’s earnings was negative, as the stock trended lower in the two sessions following its results.

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Does this mean that Nvidia’s hot streak has hit a speed bump? Or will the stock overcome this bump and resume its journey north to deliver more gains for investors in 2025? Let’s find out.

Nvidia reported record quarterly revenue of $35.1 billion in its fiscal third quarter, an increase of 94% from the same period last year. The figure was well above the company’s guidance of $32.5 billion, and also beat the consensus estimate of $33.17 billion. Nvidia’s non-GAAP (GAAP) earnings rose 103% year-over-year to $0.81 per share, which was well above the consensus estimate of $0.75 per share.

The guidance was the icing on the cake, with Nvidia expecting fiscal fourth-quarter revenue to reach $37.5 billion at the midpoint. That was slightly higher than Wall Street estimates of $37 billion. However, the stock fell in pre-market trading for several reasons.

First, Nvidia’s revenue guidance for the current quarter will translate to a roughly 70% year-over-year increase from last year’s reading of $22.1 billion. This indicates a relative slowdown in the company’s growth. Second, the company guided for a non-GAAP gross margin of 73.5% for the current quarter. This figure reached 76.7% in the same period last year.

However, smart investors should consider looking beyond these two factors. The company is still growing at an amazing pace, even though it has already achieved a huge revenue base. The 70% year-over-year jump in revenue, although slower than previous quarters, is still very strong when we take into account that its primary competitor has a smaller revenue base, AMDIt was growing at a much slower pace.

Also, the margin pressure will not last long. The lower margin Nvidia expects for the current quarter is due to increased production of next-generation Blackwell AI chips. The company is looking to maximize production in an attempt to meet the huge demand for these chips, and this will have an impact on margins in the short term.

As CFO Colette Kress noted on the most recent earnings conference call:

Our current focus is to meet strong demand, increase system availability, and provide the optimal mix of configurations to our customers. With Blackwell on the rise, we expect gross margins to moderate to the low 70s. At full slope (release), we expect Blackwell margins to be in the mid-70s.

The short-term margin pressure shouldn’t last for long, as Nvidia says demand for its Blackwell processors is “astonishing,” which is why it’s “racing to expand supply to meet incredible demand… (from) customers.”

The good part is that Nvidia expects to deliver more Blackwell chips than it originally expected in 2024. Until then, the company notes that demand for these chips will continue to outpace supply, and it will continue to work on improving production in 2025 and Nvidia expects to continue Blackwell’s revenues are on the rise with each quarter going into next year, and it is expected to exceed quarterly revenues from chips made using the latest previous-generation Hopper architecture in April next year.

Once the transition from Hopper to Blackwell is complete and Nvidia can produce enough of these chips to keep up with the massive demand it’s seeing, it should be able to maintain healthy growth in its revenues and profits in 2025 and beyond.

Nvidia’s fourth-quarter financial guidance suggests it’s on track to end the year with revenue of $123.5 billion (adding its fourth-quarter guidance to its revenue in the first nine months of fiscal 2025). Management’s comments appear to have given analysts confidence that it will be able to deliver another strong performance next year.

As the chart shows, Nvidia’s revenue estimates for fiscal 2026 (which runs from the end of January 2025) have risen.

NVDA’s revenue estimates for the current fiscal year Data by YCharts

Meanwhile, analysts expect the company’s net earnings to grow another 48% in fiscal 2026 to $4.27 per share. However, if demand for Blackwell’s processors remains strong and contributes significantly to its bottom line, there’s a good chance it can beat Wall Street’s expectations. After all, Nvidia has beat consensus earnings estimates in each of the last four quarters by consistently delivering stronger-than-expected growth.

Blackwell could help it maintain this trend next year, which is why investors can still continue to hold Nvidia stock, or even buy more of it. That’s because Nvidia currently trades at 33 times forward earnings, which is close to technology-laden earnings. Nasdaq-100 The index’s forward earnings multiple is 31.3. If Nvidia can deliver stronger earnings growth and the market decides to reward it with a premium valuation, it should be able to generate more upside in 2025.

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Harsh Chauhan He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has Disclosure policy.

Will Nvidia’s blockbuster results be enough to lift the stock price? Originally published by The Motley Fool