NVIDIA’s Promising Outlook Amidst Recent Setbacks and Strong AI Demand

Chicago, IL – March 3, 2025 – Zacks.com has announced the latest stocks and ETFs highlighted in the Analyst Blog. Each day, Zacks Equity Research analysts provide insights into the most pertinent news affecting stocks and financial markets. Recently featured stocks include NVIDIA Corp. (NVDA), Meta Platforms Inc. (META), Alphabet Inc. (GOOGL), Microsoft Corp. (MSFT), and Amazon.com Inc. (AMZN).

Highlights from Monday’s Analyst Blog

NVIDIA: A Strategic Buy with Innovation and Vision

On February 26, after the market closed, NVIDIA Corp., known globally as the leader in generative AI-powered graphical processing units (GPUs), reported impressive fourth-quarter fiscal 2025 earnings along with robust guidance for the first quarter of fiscal 2026.

However, on February 27, NVDA’s stock price fell 8.5% due to concerns surrounding a slight miss in adjusted gross margin coupled with a slowdown in year-over-year revenue growth and earnings that have persisted in previous quarters. Additionally, apprehension regarding potential tariffs on NVIDIA’s components and export restrictions weighed on investor sentiment.

Despite these challenges, NVIDIA’s commitment to vision, innovation, and effective execution remains strong. The recent drop in stock price has positioned NVDA in negative territory year-to-date. Analysts see this pullback as a potential buying opportunity for investors in 2025.

Strong Fourth Quarter Earnings Report

NVIDIA reported adjusted earnings of $0.89 per share, exceeding the Zacks Consensus Estimate of $0.84 per share. This marks a significant increase from the $0.52 per share reported the previous year. The company achieved quarterly revenues totaling $39.33 billion, outperforming the consensus estimate of $37.72 billion, which translates to a surprise of +4.3%.

Despite these impressive results, some financial analysts point to a deceleration in growth. NVIDIA’s non-GAAP gross margin of 73.5% showed a decline of 3.2% year-over-year and 1.5% sequentially, primarily due to the shift to more advanced and high-cost systems within the Data Center segment.

Data Center revenues reached $35.58 billion, surpassing the consensus estimate of $33.51 billion and reflecting a 93% increase compared to the previous year. Computing revenues reached $32.56 billion against a consensus of $30.22 billion, while networking revenues came in at $3.02 billion, just shy of the $3.35 billion consensus estimate.

Significantly, NVIDIA has largely addressed supply chain issues regarding its next-generation Blackwell chips, increasing both production and shipments. In the fiscal quarter reported, the company sold $11 billion worth of Blackwell chips, exceeding the consensus projection of $6-7 billion.

Confident Guidance Ahead

NVIDIA anticipates a strong first quarter in fiscal 2026 driven by robust demand for its AI-powered GPUs, significantly downplaying concerns about the availability of economically viable alternatives from the Chinese firm DeepSeek. CEO Jensen Huang noted that the next generation of AI models will require substantially more computing power, stating, “The amount of computation necessary to do that reasoning process is 100 times more than what we used to do.”

NVIDIA’s forecast for first-quarter fiscal 2026 revenue is set at $43 billion (+/-2%), exceeding the current Zacks Consensus Estimate of $41.06 billion. The projected non-GAAP gross margin stands at 71% (+/-50 bps), with operating expenses estimated at $3.6 billion. The consensus for non-GAAP gross margin is 72.1%, indicating that maintaining a margin above 70% in a highly competitive industry is commendable.

NVIDIA’s Growth Relies on Expanding AI Investments

The AI sector is expected to witness significant spending, with major data center operators such as Meta Platforms Inc., Alphabet Inc., Microsoft Corp., and Amazon.com Inc. pledging a combined $325 billion toward AI in 2025.

On January 21, President Donald Trump announced a new venture named “Stargate” in collaboration with OpenAI, Oracle, and Softbank, aiming to establish a data center-focused AI infrastructure in the United States. Initial investments will be around $100 billion, potentially rising to $500 billion over four years, supplemented by Softbank’s previous commitment of $100 billion.

Similarly, Apple plans to allocate $500 billion in the next four years, partly aimed at developing and manufacturing AI servers for its Apple Intelligence tools. Additionally, there are reports of Meta Platforms constructing a new data center campus for AI initiatives, possibly costing over $200 billion.

Continual Innovations from NVIDIA

For all the companies mentioned, NVIDIA serves as the largest supplier of chipsets. Beyond the Blackwell series, NVDA recently launched a new AI chip architecture named Rubin, set to debut in 2026. This will include new GPUs for AI systems and networking chips, featuring a central processor known as Vera.

The automotive sector may become an additional source of growth for NVIDIA. In the last reported quarter, revenues from the Automation segment reached $570 million, outpacing the consensus estimate of $472.35 million and marking a 102.9% increase year-over-year, primarily driven by NVDA’s advancements in self-driving technology.

Positive Revisions for NVDA Estimates

NVIDIA is projected to achieve a revenue growth rate of 45% and an earnings growth rate of 41.1% for the current fiscal year ending January 2026. The Zacks Consensus Estimate for current-year earnings has improved by 0.2% over the last week.

Looking ahead, revenue and earnings growth estimates for the next year, ending January 2027, stand at 21.7% and 25.5%, respectively, reflecting a 0.4% increase in earnings estimates recently. NVIDIA also boasts a long-term (3-5 years) EPS growth rate of 20%, significantly surpassing the S&P 500 Index’s growth rate of 12.2%.

Attractive Valuation of NVDA Shares

NVIDIA currently holds a Zacks Rank #2 (Buy). For further insights, you can explore the complete list of today’s Zacks #1 Rank stocks here. The company reports a return on equity (ROE) of 122.83%, well above the S&P 500’s ROE of 17.1% and the industry’s ROE of just 6.4%.

NVIDIA maintains a net margin of 55.85%, compared to the industry’s 8.4% and the S&P 500’s 12.57%. The company’s forward P/E (price/earnings) ratio is indicative of its solid financial standing and market position.