Nvidia’s AI Power: What to Expect in Upcoming Earnings Report

The rush for artificial intelligence infrastructure is boosting Nvidia (NASDAQ: NVDA). Over the past five quarters, the company has seen its revenue and earnings soar at a triple-digit rate, and its stock price has skyrocketed by 910% since January 2023.

Nvidia plans to release its financial results for the third quarter on Wednesday, Nov. 20, after the market closes. With past earnings announcements causing sharp stock price fluctuations, potential investors may wonder: Is now the right time to buy shares?

Wall Street’s Strong Support for Nvidia

Wall Street analysts remain exceptionally optimistic. Of the analysts covering Nvidia, 92% rate the stock as a buy, while the remaining 8% suggest holding off. Notably, no analysts recommend selling the stock before the upcoming earnings report.

Nvidia’s Dominance through Vertical Integration

Nvidia excels in accelerated computing, particularly with its graphics processing units (GPUs). These chips are leaders in enhancing performance for tasks, such as artificial intelligence, that require substantial computational power. However, Nvidia stands out for offering complete solutions that combine hardware, software, and services.

The company has developed a comprehensive ecosystem called CUDA, featuring over 300 code libraries and 600 pretrained models. This ecosystem enables developers to create GPU-accelerated applications across various fields, from robotics to scientific research. Nvidia also manufactures essential data center hardware, such as central processing units (CPUs) and high-speed networking equipment.

These products come together in Nvidia’s DGX Cloud service. This platform allows businesses to access the powerful computing resources and tools needed to develop and manage AI applications via the internet. While GPUs are the main revenue driver, Nvidia’s software and services division is projected to hit an annual revenue run rate of $2 billion this year, and its networking side has already reached $14 billion annually.

CEO Jensen Huang emphasizes that Nvidia’s integrated approach leads to a much better cost-effectiveness. Essentially, Nvidia’s GPUs not only provide top performance but are also among the most cost-effective solutions when considering both direct and indirect expenses—a factor that establishes a solid competitive edge against rivals.

Image source: Getty Images.

Anticipating Nvidia’s Third-Quarter Earnings Report

In its second-quarter earnings for fiscal 2025, which ended in July 2024, Nvidia surpassed expectations. Revenue jumped 122% to $30 billion, and non-GAAP earnings rose 152% to $0.68 per diluted share. This marked the fifth consecutive quarter of strong growth.

However, analysts predict a slowdown this quarter. Nvidia’s guidance indicates an expected revenue and non-GAAP earnings growth of 80%. Yet, analysts are optimistic and forecast an 81% revenue increase to $32.9 billion and a non-GAAP earnings rise of 85% to $0.74 per diluted share.

Even if Nvidia meets or exceeds these projections, there is no certainty that the stock will rally. After beating estimates last quarter, the stock dipped roughly 8%. Investor expectations have tightened; they now look for significant earnings beats, contributing to notable stock price volatility in prior quarters with a 10.7% average movement following earnings announcements. Anticipate the same fluctuations around this upcoming report.

Nvidia’s Stock Valuation Remains Attractive

Analyst Christopher Rolland from Susquehanna stated, “Nvidia has become the world’s de facto enabler of AI.” Given its significant lead, Nvidia is likely to maintain its market position. While competitors may eventually create faster AI chips, they will struggle to compete with Nvidia’s extensive software ecosystem, which has been cultivated for nearly two decades.

Looking forward, analysts expect Nvidia’s adjusted earnings to grow by around 50% annually through fiscal 2026. Based on these projections, its current valuation of 66.5 times adjusted earnings appears reasonable.

Personally, I believe Nvidia is a critical stock to consider due to its involvement in multiple aspects of the AI market. Many analysts recommend that investors think about acquiring a small amount now and potentially increasing their holdings if the stock price drops after earnings release.

Seize Another Chance for Potential Gains

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*Stock Advisor returns as of November 4, 2024

Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. 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.