One of the most profound changes in the technology landscape in recent years has been developments in artificial intelligence (AI). There’s a strong argument that the arrival of AI early last year was one of the biggest sparks that ignited the current bull market rally. ChatGPT heralded the arrival of generative AI, and since its release in November 2022, the S&P500 is up 46%, while the Nasdaq Composite is up 67% (at the time of writing).
While there have been numerous beneficiaries of this secular tailwind, one of the most notable has been Nvidia (NASDAQ: NVDA). In short, the company’s graphics processing units (GPUs), originally developed to create lifelike visuals in video games, proved equally adept at powering AI models.
The resulting run on Nvidia’s chips delivered incredible financial results and sent the stock into the stratosphere. Since the start of last year, Nvidia shares have risen more than 900% (as of Thursday’s market close), making the company a stock market darling.
Nvidia has a lot to do with its financial results next week. Let’s take a look at the lead-up to this critical quarter, what Wall Street is saying and what investors can expect.
As technologists began to understand the implications of generative AI in early 2023, demand for Nvidia’s AI-centric processors soared from zero to 60 in just a few months. In the second quarter of fiscal 2024 (ending July 30), the results were no less then amazing. Nvidia posted record revenue of $13.5 billion, up 101% year over year, while adjusted earnings per share (EPS) of $2.70 rose 429%. Earnings per share in terms of generally accepted accounting principles (GAAP) were even more striking, with an increase of 854%.
The next four quarters were equally impressive, with record and triple-digit revenue and profit growth in each quarter. Nvidia’s second quarter for fiscal 2025 (ending July 28) was the last in the series. Record revenues of $30 billion rose 122% year over year, while adjusted earnings per share of $0.68 rose 152%. It’s worth noting that investors were concerned about Nvidia’s gross margin coming in lower, but it was up from a record high in the second quarter.
Wary investors knew the company’s triple-digit run would eventually come to an end, and management suggested the time had come. For the soon-to-be-announced third quarter (ending October 29), Nvidia is forecasting revenue of $32.5 billion, which would represent year-over-year growth of 79%.
That would mark a marked slowdown compared to the recent growth rate, and the stock initially sold off on the news. However, in the three months since that report, cooler heads have prevailed and Nvidia shares are back near record highs.
The biggest driver for Nvidia’s future results is the upcoming release of its AI-centric Blackwell architecture. After a slow start due to production issues, management has confirmed that the chips are on track to ship by the end of the year. CEO Jensen Huang said in an interview that demand for the processors was “insane.” He went on to say, “Everyone wants to have the most, and everyone wants to be first.” CFO Colette Kress had previously stated: “In the fourth quarter, we expect to generate several billion dollars in Blackwell revenue.”
Nvidia’s strong track record of innovation has kept the company at the forefront of the AI revolution, and it doesn’t seem like this will change any time soon.
Heading into Nvidia’s critical report next week, Wall Street remains decidedly optimistic. Analyst consensus estimates are for revenues of $33 billion – or growth of about 82%. Nvidia has a strong track record of exceeding its own expectations and those of Wall Street, so the results could be more robust.
Of the 63 analysts who have offered their opinions on Nvidia so far in November, 94% rate the stock as a buy or strong buy, with none recommending a sell. The average price target of $157 suggests the stock has an upside of 11%. The consensus Buy rating and price target above the current share price suggest that analysts believe Nvidia stock has additional upside potential, although not to the same extent as over the past year.
However, over the past few days, and in light of Nvidia’s earnings report, there has been a rush among analysts to update their models, resulting in numerous price target increases this week (12, by my count). Each of these price target increases has happened higher than the current consensus of $157, suggesting Wall Street is becoming even more bullish.
The analysts were almost unanimous in their comments, citing the rapid adoption of AI and the buildout of more robust data centers to meet rising demand. Additionally, most analysts believe Nvidia was conservative with its guidance, giving the company room to exceed expectations.
One of the most optimistic insights comes from Melius Research analyst Ben Reitzes. He maintained a buy rating on the stock and raised his price target to $185. “While it didn’t seem possible, we are even more excited about Jensen Huang’s next chip than before,” he wrote in a note to customers earlier this week.
For investors tempted to sell the stock, the analyst says: “I’m giving up on Nvidia here after the hit – Hopper [AI chip] — is like Apple giving up on the iPhone 1 or 2.” He went on to call this a “once-in-a-lifetime opportunity,” and said Nvidia is a “must-have.”
Taken together, this suggests that Wall Street remains remarkably optimistic about Nvidia’s prospects – and for good reason. Even the most conservative estimates of the market opportunity presented by generative AI generally start at around $1 trillion, with many much higher. Competitors have so far failed to develop a solution that even comes close to Nvidia in terms of performance, so GPUs are laying the foundation for the AI revolution.
To be clear, I’m bullish on Nvidia and believe the stock can rise much further from here. That said, I am also aware of the volatility that is sure to ensue in the coming weeks and months. If you have any doubts, consider that earlier this summer, Nvidia stock lost 27% of its value in a few weeks, only to come back full force to new all-time highs.
Finally, there is valuation to consider. Wall Street forecasts that Nvidia will generate earnings per share of $4.16 in fiscal 2026, which starts in late January. That means the stock is currently selling for about 34 times next year’s earnings. While that’s a small premium, keep this in mind: Nvidia’s revenue is up 868% over the past five years, while net profit is up 1,650%. This has led to a price increase of 2,610% (at the time of writing). That clearly illustrates why Nvidia deserves a premium.
We’ll know more after Nvidia reports its results after the market closes on Wednesday, November 20.
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Danny Vena has positions at Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Should You Buy Nvidia Stock Before November 20? Wall Street has a compelling answer. was originally published by The Motley Fool
