The past quarters have already been quite successful Nvidia(NASDAQ: NVDA). The company has built an artificial intelligence (AI) empire thanks to its strengths in the technology customers need to power AI projects. Nvidia’s AI chips, or graphics processing units (GPUs), are the fastest available, and customers are flocking to the company for them — even if they have to wait because demand exceeds supply.
All of this has resulted in triple-digit earnings growth, quarter over quarter, and stock price gains of 2,600% over the past five years. Momentum hasn’t slowed this year, with shares on track to rise 185%.
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While Nvidia is forecasting double-digit revenue growth for the third quarter, I don’t view this as a slowdown. In fact, my prediction is that the next period – the fourth quarter – will be huge for Nvidia. Let’s find out why.
Image source: Getty Images.
First, a quick recap of the Nvidia story so far: The company has become almost synonymous with AI due to its market dominance, with sales to AI customers accounting for 87% of total revenue. But this was not always the case. Nvidia started out primarily serving the video game market with its GPUs. However, it soon became clear that these chips – with the ability to process multiple tasks simultaneously – could be valuable in many other areas.
To make this possible, Nvidia developed the parallel computing platform CUDA, and gradually expanded its reach into other industries. And when the AI boom arrived, Nvidia’s GPU found its next huge growth driver.
But Nvidia didn’t just stop with the GPU, but instead expanded its AI offerings to include a wide range of products and services to make itself the one-stop shop for any AI project. Nvidia is “the on-ramp” to the AI world, CEO Jensen Huang said in a recent interview on podcast BG2Pod. And indeed, the company has all the major AI market participants on board, including companies like Metaplatforms And Amazon as customers.
In fact, recently Oracle co-founder Larry Ellison said he and Tesla chef Elon Musk took Huang out to dinner and “begged” for more GPUs.
So it’s clear that Nvidia has a solid position in AI, a market that is expected to grow from $200 billion today to $1 trillion by the end of the decade, and this has translated into an explosion in recent years of earnings and stock performance.
Now let’s get back to my prediction. Even though Nvidia predicts slower growth in the third quarter, why will the fourth quarter be so big for the company?
It is not yet clear whether fourth quarter revenue growth will reach double digits, but even if it does, this should not be considered a weak performance. Nvidia’s comparison periods have become difficult, as revenue has already reached extremely high levels – and this makes sustained triple-digit growth almost impossible.
What should make the fourth quarter a highlight for Nvidia is the launch of its highly anticipated new architecture, Blackwell, and its most powerful chip yet. Nvidia plans to ramp up production this quarter and even rake in billions of dollars in revenue over the period. So the fourth quarter represents the first quarter of Blackwell revenue.
Nvidia says demand for Blackwell has exceeded supply and will continue into next year, showing that customers are flocking to the company for this new product. Meanwhile, demand for the current architecture, Hopper, remains strong, so it should also contribute significantly to revenue in the final quarter of the fiscal year. (Customers will continue to buy these “older” products as Nvidia continues to update its entire platform so that all parts work together seamlessly.)
Nvidia shares have soared, trading at 49x forward earnings estimates. While this isn’t dirt cheap, it remains reasonable for an AI leader at this stage of its story. Nvidia, with the launch of Blackwell on the horizon and a promise to continue innovating on a year-over-year basis, has room to run – and my prediction is that the fourth quarter will be a big moment for Nvidia and may even see another wave of profits launch .
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Prediction: Fourth Quarter Will Be Huge for Nvidia was originally published by The Motley Fool
