We’re now two years removed from OpenAI’s launch of ChatGPT, and there’s no doubt about which company has been the biggest winner of the generative AI revolution so far.
Nvidia (NASDAQ: NVDA)now best known for making cutting-edge chips that can power AI applications like ChatGPT, has seen its stock rise tenfold since the start of 2023, making many investors significantly richer. This month it once again became the most valuable company in the world, with a market capitalization of more than $3.5 trillion.
Do you miss the morning spoon?Breakfast news delivers it all in one fast, silly and free daily newsletter. Register for free »
Despite concerns that competition would fuel this or that the AI megatrend would inflate a bubble that would eventually burst, Nvidia has continued to deliver great results, and that pattern was reflected again in its third-quarter earnings report of the fiscal year 2025 that issued the report. Wednesday.
Total revenue in the quarter rose 94% year over year to $35.1 billion, surpassing the consensus estimate of $33.1 billion. The data center segment, where revenue rose 112% to $30.8 billion, drove that growth as demand for graphics processing units (GPUs) continues to outpace supply.
Profits also rose as the company gained more control over its operating costs. On a generally accepted accounting principles (GAAP) basis, operating income rose 110% to $21.9 billion, and adjusted earnings per share rose from $0.40 to $0.81, ahead of the consensus estimate of $0.75.
Never before in history has a company as big as Nvidia grown so quickly. Notably, the 94% revenue growth was the slowest percentage pace in six quarters, but the growth rates are continuing for much longer than analysts expected. The dollar amount of sales it adds each quarter also increases sequentially, so the company’s actual growth rate is accelerating even as the percentage growth rate decreases.
Earlier this year, some analysts questioned whether the level of dominance Nvidia has built in the AI chip sector was sustainable. Advanced micro devices And Intel have launched their own competing AI accelerators. However, they have struggled to make a dent in Nvidia’s dominant market share. AMD disappointed the market with its latest earnings report and announced layoffs earlier this month, while Intel began a massive restructuring after its shares hit a 20-year low.
Right now, the main impediment to Nvidia’s growth is on the supply side, as CEO Jensen Huang recently said demand for its latest GPUs, built using the new Blackwell architecture, is “insane.”
CFO Colette Kress described demand for the Blackwell chips during the earnings call, saying, “Every customer is racing to be first to market.”
Management emphasized how broad Blackwell’s reach is in terms of applications and customer base, and how large its partner ecosystem is. “[A]Almost every company in the world seems to be involved in our supply chain,” Huang said.
Besides concerns that rivals could make headway with it, the other bearish case about Nvidia revolves around the idea of an “AI bubble.” Some onlookers believe that market demand for AI applications will not justify the massive capital expenditures on AI infrastructure that are fueling Nvidia’s growth.
However, when asked about it during the earnings call, Huang pushed back on the idea of AI reaching scaling limitations, saying, “The pre-training scaling of our base model is intact and continuing.” He also said it was critical to scale up post-training and inference so that large language models and other AI models would become more capable.
After successfully weathering competition from AMD and Intel and delivering another smashing quarter, Nvidia seems unstoppable.
Fourth-quarter guidance calls for another increase in sales to $37.5 billion, up 70% from the year-ago quarter, even as demand far exceeds supply. Huang has described a vision for the future that puts Nvidia technology at the center of AI. factories – data centers tasked with powering artificial intelligence applications – and companies of all stripes are rushing to make that future a reality.
Nvidia shares retreated slightly in after-hours trading on Wednesday, but that appeared to be more a reflection of the stock’s valuation and management guidance. However, the business misinterprets this. Based on run-rate EPS, the stock trades at a price-to-earnings ratio of 45, and earnings are likely to soar in the coming year. Relative to the growth rate, the stock does not seem too expensive.
Nvidia remains at the helm of the AI revolution, and its stock continues to look like a screaming buy.
Consider the following before buying shares in Nvidia:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $869,885!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. TheStock Advisoris on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns November 18, 2024
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: Short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
Can anything stop Nvidia? was originally published by The Motley Fool
