NVIDIA Reports Robust Q4 Results Amid Market Concerns
On Feb. 26, after the closing bell, NVIDIA Corp. NVDA, the clear leader in generative artificial intelligence (AI)-powered graphical processing units (GPUs), announced impressive fourth-quarter fiscal 2025 earnings results alongside strong guidance for the first quarter of fiscal 2026.
Despite these positive results, the stock price of NVDA dropped 8.5% on Feb. 27 due to concerns over a minor miss in adjusted gross margin and the slowing growth of year-over-year revenues and earnings observed in recent quarters. Additionally, worries regarding potential tariffs on NVIDIA’s supplies and export restrictions affected investor sentiment.
Nevertheless, NVIDIA continues to stand out due to its visionary strategies, innovation, and effective execution. The recent stock decline has positioned NVDA in negative territory year-to-date. We view this as a potential buying opportunity for investors throughout 2025.
Impressive Q4 Fiscal 2025 Earnings Highlights
NVIDIA reported quarterly adjusted earnings of $0.89 per share, surpassing the Zacks Consensus Estimate of $0.84 per share. This marks an increase from earnings of $0.52 per share a year earlier. The company’s quarterly revenues reached $39.33 billion, exceeding the Zacks Consensus Estimate of $37.72 billion by 4.3%.
Despite these strong results, some financial analysts are raising concerns regarding slowing growth. NVIDIA’s non-GAAP gross margin of 73.5% represents a contraction of 3.2% on a year-over-year basis and 1.5% sequentially. This decline was largely attributed to a shift toward more complex and expensive systems within the Data Center segment.
Data Center revenues totaled $35.58 billion, outpacing the consensus estimate of $33.51 billion, and demonstrating a remarkable 93% year-over-year increase. In this segment, Computing revenues were $32.56 billion compared to the consensus of $30.22 billion, while Networking revenues came in at $3.02 billion versus the expected $3.35 billion.
Importantly, NVDA has resolved most supply-related issues concerning its next-generation Blackwell chips, increasing production and shipments. In the reported quarter, the company sold $11 billion in Blackwell chips, well above the consensus estimate of $6-7 billion.
Promising Guidance Ahead
NVIDIA anticipates a strong first quarter for fiscal 2026, driven by robust demand for its AI-powered GPUs. The company has downplayed concerns related to the availability of low-cost solutions from Chinese competitor DeepSeek. CEO Jensen Huang highlighted the necessary computing power for next-generation AI models, stating, “The amount of computation necessary to do that reasoning process is 100 times more than what we used to do.”
For the first quarter of fiscal 2026, NVDA expects revenues of $43 billion (+/-2%), exceeding the current Zacks Consensus Estimate of $41.06 billion. The projected non-GAAP gross margin is 71% (+/-50 bps), with non-GAAP operating expenses estimated at $3.6 billion. While the consensus for non-GAAP gross margin is 72.1%, maintaining an adjusted gross margin over 70% in a competitive industry is commendable.
Growth from AI Investments
The AI boom is set to continue, supported by significant spending. Major data center operators, including Meta Platforms Inc. META, Alphabet Inc. GOOGL, Microsoft Corp. MSFT, and Amazon.com Inc. AMZN, have committed to $325 billion in AI investments for 2025.
On Jan 21, former President Donald Trump announced a collaboration named “Stargate” involving OpenAI, Oracle Corp. (ORCL), and Softbank to establish AI infrastructure in the U.S. This project involves an initial investment of $100 billion, with total costs projected to rise to $500 billion in four years, supplementing Softbank’s $100 billion pledge made in December to advance AI infrastructure.
In addition, Apple Inc. (AAPL) plans to invest $500 billion over the next four years, partly for developing AI servers for its Apple Intelligence tools. Meanwhile, Meta Platforms is reportedly exploring a new data center campus for AI projects, with anticipated expenses exceeding $200 billion.
Ongoing Innovations Drive Future Potential
For all these leading companies, NVIDIA remains the largest supplier of chipsets. Alongside its Blackwell chips, NVDA plans to introduce its new AI chip architecture, Rubin, on June 2, 2024. This architecture will include new GPUs for AI systems, CPUs, and networking chips, featuring a central processor called Vera. Rubin is expected to debut in 2026.
Furthermore, the automotive sector may become another growth driver for NVIDIA. In the last reported quarter, automotive segment revenues reached $570 million, surpassing a consensus estimate of $472.35 million, and reflecting a 102.9% year-over-year growth. This increase was primarily due to NVDA’s advancements in self-driving technology, with a focus on powering advanced driver-assistance systems (ADAS), autonomous vehicles, and robotics.
Positive Estimate Revisions for NVDA Stock
NVIDIA is projected to experience a revenue growth rate of 45% and an earnings growth rate of 41.1% for the current year ending January 2026. The Zacks Consensus Estimate for current-year earnings has increased by 0.2% over the last week.
Looking to next year, the expected revenue and earnings growth rates are 21.7% and 25.5%, respectively. The Zacks Consensus Estimate for next-year earnings has improved by 0.4% in the last seven days. Over the long term (3-5 years), NVDA has a projected EPS growth rate of 20%, outperforming the S&P 500 Index’s 12.2% growth rate.
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Attractive Valuation for NVDA Shares
Currently, NVIDIA holds a Zacks Rank #2 (Buy). Investors are encouraged to remain attentive to further developments.
NVIDIA Shows Strong Financials Amid Market Challenges
View the complete list of today’s Zacks #1 Rank stocks here. NVIDIA Corporation (NVDA) boasts a remarkable return on equity (ROE) of 122.83%, significantly surpassing the S&P 500’s ROE of 17.1% as well as the industry average of 6.4%.
Financial Performance Indicators
When it comes to profitability, NVDA currently has a net margin of 55.85%, compared to the industry’s net margin of 8.4% and the S&P 500’s margin of 12.57%. Furthermore, NVDA’s forward price-to-earnings (P/E) ratio stands at 31.14, slightly above the industry’s P/E of 31.01 but far above the S&P 500’s P/E of 18.9.
As of January 26, 2025, NVIDIA reported cash, cash equivalents, and marketable securities totaling $43.2 billion, an increase from $38.4 billion recorded on October 27, 2024. This growth primarily reflects higher revenues, which were somewhat offset by stock buybacks. The company’s total long-term debt remained stable at $8.46 billion. In the latest quarter, NVIDIA generated $16.6 billion in operating cash flow, up from $11.5 billion during the same quarter last year.
Price Target and Market Outlook
The average short-term price target from brokerage firms suggests a 35% increase from NVIDIA’s last closing price of $120.15. Current analyst price targets range from $135 to $220, indicating a potential upside of 83.3% with no current downside risks.
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Investment Thesis for NVIDIA
NVIDIA shares have seen a year-to-date decline of -10.5%. However, as earnings estimates are expected to rise in the coming weeks, many analysts anticipate increasing their price targets for the company, enhancing its risk/reward profile.
Investing in NVIDIA represents a unique chance to support a company with solid performance and significant untapped potential in the artificial intelligence sector. Investors may consider purchasing this stock on market dips, creating a systematic investment approach to average costs.
Long-term holding of NVIDIA shares seems prudent, as the company’s consistent execution and promising projections are likely to create more value. Consequently, NVDA stock price is expected to experience considerable appreciation.
The chart below illustrates NVDA’s price performance year to date.
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This article originally published on Zacks Investment Research (zacks.com).
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
