Semiconductor company Nvidia(NASDAQ: NVDA) has become the ultimate artificial intelligence (AI) stock for many investors. Since ChatGPT launched in late 2022, Nvidia shares have risen about 950%, making it the best-performing stock in the world. S&P500(SNPINDEX: ^GSPC).
On Wednesday, November 20, Nvidia will report earnings for the third quarter of fiscal 2025, which ends in October 2024. I expect the shares to rise in the days and weeks following the report for three simple reasons. Read on for more information.
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Nvidia builds the most coveted graphics processing units (GPUs) in the computer industry because they have become the gold standard in accelerating artificial intelligence (AI) workloads. Indeed, Nvidia has over 80% market share in AI accelerators, and Forrester research recently wrote, “Without Nvidia GPUs, modern AI wouldn’t be possible.”
Nvidia told investors last quarter that production of its next-generation Blackwell GPU would begin in the fourth fiscal quarter (i.e. current) of 2025, which ends in January 2025. Management will likely provide an update in the third quarter. the profit figures are calling and shareholders have reason to anticipate good news. Earlier this year, CEO Jensen Huang said Blackwell would be the most successful product launch in the company’s history.
Additionally, Nvidia executives recently told analysts that Blackwell GPUs are already “fully booked for 12 months.” This means that demand for the new processors is so high that the company will need a full year to clear the existing order book. Consequently, Nvidia will be happy to provide encouraging guidance on November 20, which should drive shares higher.
Nvidia has provided encouraging guidance for the third quarter. Management said revenue would increase 80% to $32.5 billion (plus or minus 2%) due to continued demand for the current generation of GPUs, called Hopper. Management also said non-GAAP earnings would rise 80% to $0.72 per diluted share (plus or minus 2%).
However, Wall Street analysts have steadily raised their third-quarter earnings estimates since Nvidia issued its initial guidance. The consensus now calls for an 85% increase in earnings to $0.74 per diluted share, LSEG said. Analysts have also raised their price targets, so the consensus of $156 per share implies an upside of 10% from the current share price of $142.
Wall Street analysts are not omniscient, but their insight is valuable because they have more resources than retail investors. The fact that analysts have become more optimistic ahead of Nvidia’s third-quarter report is a good sign. It suggests that very thorough research has revealed signs of strong demand. That could drive shares higher after November 20.
Image source: Getty Images.
Nvidia counts all the largest hyperscale cloud computing companies among its customers. That includes Alphabet, Amazon, MetaplatformsAnd Microsoft. These companies have not only aggressively invested in AI infrastructure through 2024, but also expect capital expenditures to increase next year.
Alphabet’s capital expenditures totaled $13 billion in the third quarter, most of which went to infrastructure, and management expects a similar level of spending in the fourth quarter. But CFO Anat Ashkenazi told analysts: “We do see an increase coming in 2025.”
Amazon expects capital expenditures to reach $75 billion by 2024. But CEO Andy Jassy recently told analysts, “I suspect we’ll be spending more on that in 2025.” He said most of that capital was earmarked for the cloud computing business, and he specifically cited generative AI as a boost.
Meta Platforms’ capital expenditures will total approximately $40 billion by 2024, with the majority allocated to AI servers. However, CFO Susan Li recently told analysts: “We expect significant acceleration in infrastructure cost growth next year.”
Microsoft’s capital expenditures totaled $20 billion in the first quarter of fiscal 2025, which ended in October 2024. CFO Amy Hood told analysts: “We expect capital expenditures to increase on a sequential basis given our cloud and AI demand signals.”
Some of the expenses discussed above reflect the strong demand for Blackwell. However, Nvidia also builds central processing units (CPUs) and networking equipment. According to Bloomberg, the company has even achieved a leading position in the field of AI networking equipment. So the increase in capital expenditures further supports the idea that Nvidia will provide encouraging guidance when it announces third-quarter results. That could drive shares higher after November 20.
The most important conclusion, however, is that Nvidia has an important competitive advantage in vertical integration. Because the company effectively designs complete data centers, Nvidia can build systems with superior total cost of ownership, Jensen Huang said. That should give the company an edge over its competitors in the coming quarters and years. Indeed, Morgan Stanley analyst Joseph Moore recently wrote, “The market tends to underestimate the difficulty of competing with Nvidia.”
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Trevor Jennevine has positions at Amazon and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Prediction: Nvidia Stock Will Rise After November 20 Because of These 3 Simple Reasons was originally published by The Motley Fool
