Nvidia’s AI Surge: Why Q4 is Set to Soar

The past several quarters have proven to be highly beneficial for Nvidia (NASDAQ: NVDA). The company has established itself as a giant in the artificial intelligence (AI) sector, driven by its cutting-edge technology. Nvidia’s graphics processing units (GPUs), recognized as the fastest in the industry, continue to attract customers despite overwhelming demand.

This success has led to impressive triple-digit earnings growth consistently and a staggering 2,600% increase in the stock price over the last five years. The upward trend is far from over, as the stock is projected to rise by 185% this year.

Nvidia predicts double-digit revenue growth for the third quarter; however, this should not be interpreted as a deceleration. In fact, I believe the following quarter will be monumental for Nvidia. Let’s explore why.

Image source: Getty Images.

Nvidia’s Transition to AI: A Quick Overview

Nvidia has become nearly synonymous with AI, with sales to AI customers making up 87% of its total revenue. This marks a significant shift from its early days focused mainly on the video game market. The potential of GPUs to handle multiple tasks simultaneously led Nvidia to develop its parallel computing platform, CUDA, allowing the company to expand into various industries.

As the AI boom took off, Nvidia’s GPUs became crucial for many new projects. The company did not rest on its laurels; it diversified its offerings by creating a broad range of products and services tailored for AI. Chief Executive Officer Jensen Huang refers to Nvidia as “the on ramp” for AI, highlighting its importance in the marketplace with big names like Meta Platforms and Amazon in its customer list.

Recently, Oracle co-founder Larry Ellison mentioned that he and Tesla chief Elon Musk once dined with Huang, appealing for more GPUs, which underscores Nvidia’s dominance and strong demand in the AI space. The AI market is expected to grow from $200 billion today to $1 trillion by the end of the decade, significantly boosting Nvidia’s earnings and stock performance over the past years.

Anticipating Revenue Growth

Now, let’s delve into why I am confident about Nvidia’s performance in the fourth quarter. While Nvidia anticipates a slowdown in growth during the third quarter, it’s essential to consider that revenue comparisons are becoming increasingly challenging due to already high levels.

A key reason the fourth quarter may excel lies in the anticipated launch of its new architecture, Blackwell, along with its most powerful chip to date. Nvidia plans to ramp up production and expects substantial revenue during this period, marking the debut quarter for Blackwell sales.

The company reports that demand for Blackwell exceeds supply, a trend expected to carry into next year, indicating strong customer interest. Current architecture, Hopper, continues to perform well, further bolstering revenue for the fiscal year’s last quarter, as Nvidia’s ongoing updates ensure compatibility across all products.

Investor Outlook

Nvidia shares have soared, leading to a trading metric of 49 times forward earnings estimates. While this valuation isn’t the lowest, it remains justifiable for a leader in the AI industry at this pivotal moment. With the Blackwell launch on the horizon and an ongoing commitment to innovation, Nvidia is poised for significant growth. I predict that the fourth quarter will represent a critical turning point for the company and may pave the way for continued gains.

Capitalizing on Investment Opportunities

Have you ever felt like you missed out on investing in top-performing stocks? Now is the perfect chance to reconsider.

Occasionally, our analysts issue a strong recommendation for stocks they believe are on the verge of major success. If you think you’ve already missed your chance, now is the opportune time to invest before prices rise. Consider these impressive returns:

• Amazon: If you invested $1,000 when we doubled down in 2010, you’d have $20,993!*
• Apple: If you invested $1,000 when we doubled down in 2008, you’d have $42,736!*
• Netflix: If you invested $1,000 when we doubled down in 2004, you’d have $407,720!*

Currently, we are issuing alerts for three exceptional companies that may deliver significant returns.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 28, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon, Oracle, and Tesla. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Nvidia, Oracle, and Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.