Some of the profound changes within the tech landscape over the past couple of years has been the advancements in the sector of artificial intelligence (AI). There’s a robust argument that the arrival of AI early last yr was one among the largest sparks that set off the present bull market rally. ChatGPT heralded the arrival of generative AI, and since its release in November 2022, the S&P 500 has jumped 46%, while the Nasdaq Composite has surged 67% (as of this writing).
While there have been loads of beneficiaries of those secular tailwinds, probably the most notable has been Nvidia (NASDAQ: NVDA). In a nutshell, the corporate’s graphics processing units (GPUs), which were originally developed to craft lifelike images in video games, proved equally adept at powering AI models.
The resulting run on Nvidia’s chips fueled incredible financial results and sent the stock into the stratosphere. Because the starting of last yr, Nvidia stock is up greater than 900% (as of market close on Thursday), turning the corporate right into a stock market darling.
Nvidia has loads 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 know the implications of generative AI in early 2023, demand for Nvidia’s AI-centric processors went from zero to 60 in only months. In the corporate’s fiscal 2024 second quarter (ended July 30), the outcomes were nothing wanting astounding. Nvidia delivered record revenue of $13.5 billion, up 101% yr over yr, while its adjusted earnings per share (EPS) of $2.70 soared 429%. EPS by way of generally accepted accounting principles (GAAP) were much more striking, up 854%.
The following 4 quarters were equally impressive, with record-setting, triple-digit sales and profit growth in each. Nvidia’s fiscal 2025 second quarter (ended July 28) was the most recent within the streak. Record revenue of $30 billion jumped 122% yr over yr, while adjusted EPS of $0.68 soared 152%. It’s value noting that investors had concerns about Nvidia’s gross margin, which ticked lower, but that was from a record high set within the second quarter.
Astute investors knew the corporate’s triple-digit streak would eventually come to an end, and management suggested that point has come. For the soon-to-be-announced third quarter (ended Oct. 29), Nvidia is guiding for revenue of $32.5 billion, which might represent year-over-year growth of 79%.
That might mark a definite slowdown in comparison with its recent growth rate, and the stock initially sold off on the news. Nonetheless, within the three months since that report, cooler heads have prevailed, and Nvidia stock is back near record highs.
The most important driver for Nvidia’s future results is the upcoming release of its AI-centric Blackwell architecture. After a slow start attributable to production issues, management has confirmed that the chips are on the right track to ship by the tip of the yr. CEO Jensen Huang said in an interview that demand for the processors was “insane.” He went on to say, “Everybody desires to have probably the most, and everybody desires to be first.” CFO Colette Kress had previously stated, “Within the fourth quarter, we expect to ship several billion dollars in Blackwell revenue.”
Nvidia’s strong record of innovation has kept the corporate on the forefront of the AI revolution, and it seems that won’t be changing anytime soon.
Heading into Nvidia’s critical report next week, Wall Street stays decidedly bullish. Analysts’ consensus estimates are calling for revenue of $33 billion — or growth of about 82%. Nvidia has a robust track record of beating its own expectations and that of Wall Street, so the outcomes might be more robust.
Of the 63 analysts who offered an opinion on Nvidia to this point in November, 94% rate the stock a buy or strong buy, and none recommend selling. The typical price goal of $157 suggests the stock has upside of 11%. The consensus buy rating and price goal above the present stock price suggests that analysts consider Nvidia stock has additional upside, though to not the identical degree because it has over the past yr.
Nonetheless, over the past few days and heading into Nvidia’s earnings report, there’s been a mad dash by analysts to update their models, leading to quite a few price goal increases this week (12, by my count). Every one among these price goal increases has been higher than the present consensus of $157, suggesting Wall Street is getting much more bullish.
The analysts were nearly unanimous of their commentary, citing the rapid adoption of AI and the construct out of more robust data centers to handle the surging demand. Moreover, most analysts consider Nvidia was conservative with its guidance, giving the corporate room to surpass expectations.
Considered one of the more bullish takes comes courtesy of Melius Research analyst Ben Reitzes. He maintained a buy rating on the stock and increased his price goal to $185. “While it didn’t seem possible, we’re much more enthusiastic about Jensen Huang’s next chip than we were before,” he wrote in a note to clients earlier this week.
For investors tempted to sell the stock, the analyst says, “Giving up on Nvidia here after its hit — Hopper [AI chip] — is like giving up on Apple at iPhone 1 or 2.” He went on to call this a “once-in-a-lifetime opportunity,” saying Nvidia is a “must own.”
Taken together, this implies that Wall Street stays remarkably bullish on Nvidia’s prospects — and with good reason. Even probably the most conservative estimates regarding the market opportunity represented by generative AI generally start at about $1 trillion, and plenty of are much higher. Competitors have to this point been unable to develop an answer that even comes near Nvidia by way of performance, so its GPUs are constructing the muse of the AI revolution.
To be clear, I’m bullish on Nvidia and consider the stock has much further to climb from here. That said, I’m also cognizant of the volatility that is sure to follow within the weeks and months to return. If you have got any doubts, keep in mind that earlier this summer, Nvidia stock shed 27% of its value in a number of short weeks, only to return roaring back to set latest all-time highs.
Finally, there’s the valuation to contemplate. Wall Street is predicting Nvidia will generate EPS of $4.16 in its fiscal 2026, which begins in late January. Meaning the stock is currently selling for roughly 34 times next yr’s earnings. While that is a slight premium, consider this: Nvidia’s revenue has increased by 868% over the past five years, while its net income has risen 1,650%. This has fueled a stock price surge of two,610% (as of this writing). That illustrates quite clearly why Nvidia is deserving of a premium.
We’ll know more after Nvidia reports its results after the market close on Wednesday, Nov. 20.
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Danny Vena has positions in Nvidia. The Motley Idiot has positions in and recommends Nvidia. The Motley Idiot has a disclosure policy.
Should You Buy Nvidia Stock Before Nov. 20? Wall Street Has a Compelling Answer. was originally published by The Motley Idiot