Nvidia Shatters Third-Quarter Expectations, Eyes $4 Trillion Valuation
Nvidia (NASDAQ: NVDA) has once again dazzled investors.
Record-Breaking Revenue in Q3
The AI chip giant announced a remarkable 94% surge in revenue for the third quarter on Nov. 20, reaching $35.1 billion, surpassing estimates of $33.1 billion. Adjusted earnings per share (EPS) soared from $0.40 to $0.81, also outpacing forecasts of $0.75.
Despite this stellar performance, Nvidia’s shares dipped slightly following the announcement. Investors have grown accustomed to the company exceeding expectations, and some analysts were looking for even more robust projections for the fourth quarter, which estimates $37.5 billion in revenue—a considerable 70% jump from the same period last year.
As of now, Nvidia boasts a valuation of $3.5 trillion, making it the world’s most valuable company. Questions linger about whether it will be the first company to surpass the $4 trillion mark, a possibility that could materialize sooner than anticipated.
Image source: Getty Images.
Supply Constraints Persist
Nvidia has consistently recorded outstanding revenue growth since the introduction of ChatGPT. This quarter marked the first time in six quarters that the company did not achieve triple-digit growth, but a 94% increase is still commendable.
As Nvidia’s growth stabilizes, it continues to add significant revenue each quarter. The remarkable third-quarter revenue increase does not accurately depict the soaring demand for its products, which still exceeds supply due to Taiwan Semiconductor Manufacturing’s production limitations.
During the earnings call, CFO Colette Kress described demand for the new Blackwell platform as “staggering,” and the legacy Hopper platform’s demand as “exceptional.” She emphasized the company’s race to meet the strong customer demand, predicting that it would last for several quarters into fiscal 2026.
Nvidia Remains Resilient Against Critics
Overall, Wall Street’s outlook on Nvidia remains bullish, even with recent stock fluctuations. Despite the slight share decline, numerous analysts increased their price targets for the stock.
However, some concerns arise regarding competition and the potential for failing to maintain its leading position. Yet, with major competitors like AMD and Intel struggling to gain traction with their new AI products, Nvidia does not appear to face any immediate threat.
Following disappointing guidance, AMD’s stock fell, and they announced layoffs of 4% of their workforce. Intel continues to face challenges as it implements a massive restructuring plan.
Meanwhile, Nvidia’s data center revenue run rate has reached $120 billion, and its competitive advantages, such as the widely used CUDA software library, make it a formidable presence in the industry.
Nvidia’s Stock Valuation May Still Be Attractive
With the recent earnings report, Nvidia’s trailing price-to-earnings ratio (P/E) stands at 55, about double that of the S&P 500. However, this figure may not accurately reflect its rapid growth. The adjusted EPS of $0.81 could potentially yield a P/E of 44, a more suitable indicator of its current valuation.
Forecasts for fiscal 2026 estimate earnings of $4.31 per share, giving Nvidia a forward P/E of just 34. Historically, the company has exceeded EPS estimates by about 9% over the past four quarters, suggesting potential for an EPS of at least $4.70 next year. This would result in a forward P/E of 31, putting it in line with broader market valuations.
Nvidia’s Path to $4 Trillion
To hit a market cap of $4 trillion, Nvidia needs only a 14% gain from its current position, a feat that seems plausible by year’s end. Given its latest strong performance as a key player in the evolving computing landscape, the question isn’t if but when Nvidia will reach that $4 trillion milestone.
Investment Considerations for Nvidia
Before considering an investment in Nvidia, it’s worth noting that the Motley Fool Stock Advisor analyst team recently identified what they believe are the 10 best stocks to buy now, and Nvidia was not on that list. Investors might want to explore other options that could yield significant returns in the near future.
Reflecting on this, if you had invested $1,000 in Nvidia when it was recommended on April 15, 2005, you would have $869,885!
Stock Advisor provides an easy-to-follow strategy for successful investing, including guidance on portfolio building, regular analyst updates, and two new stock picks each month. Since its inception in 2002, the Stock Advisor service has more than quadrupled the S&P 500’s returns.
Explore the 10 recommended stocks »
*Stock Advisor returns as of November 18, 2024
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing.
The views expressed in this article are those of the author and do not necessarily reflect the opinions of Nasdaq, Inc.
