Nvidia (NASDAQ: NVDA) did it again.
The AI chip superstar posted another set of crushing results, easily beating estimates from its Nov. 20 third-quarter earnings report.
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Revenue rose 94% in the quarter to $35.1 billion, beating consensus at $33.1 billion, and adjusted earnings per share (EPS) more than doubled from $0.40 to $0.81, ahead of expectations. estimates of $0.75.
Shares retreated somewhat on the news, as investors have grown accustomed to the chip titan regularly beating expectations, and some analysts wanted to see stronger guidance for the fourth quarter, which called for $37.5 billion in revenue – a increase of 70% compared to the last quarter. past.
As of this writing, Nvidia is now worth $3.5 trillion. It’s the most valuable company in the world, but it’s natural to wonder if it will be the first to hit the $4 trillion mark. That seems likely, and it could happen sooner than you think.
Nvidia reports eye-popping revenue growth since ChatGPT launched. In fact, this was the first time in six quarters that the company failed to deliver triple-digit revenue growth, although you won’t hear any complaints about a 94% increase on the top line.
Even as Nvidia’s growth naturally slows, the amount of revenue it adds each quarter is still increasing, showing that the company is still accelerating. But what’s even more impressive is that the third quarter sales increase does not reflect the underlying demand for its product. That continues to exceed supply, which is limited by Taiwanese semiconductor manufacturing‘s ability to produce its chips.
On the third quarter earnings call, Chief Financial Officer Colette Kress described demand for the new Blackwell platform as “mind-boggling” and demand for the old Hopper platform as “exceptional.”
Speaking about the Blackwell platform, she added: “We are rushing to scale up offerings to meet the incredible demand customers are putting on us,” predicting that demand for Blackwell in fiscal 2026 will exceed supply during will surpass several quarters.
It is impossible to quantify the company’s demand, but quarterly sales should be viewed as a baseline for potential sales rather than as an accurate reflection of demand for its products.
Wall Street is overwhelmingly bullish on Nvidia, and has been for some time. Even as the company made an error in its earnings report, more than a dozen analysts raised their price targets for the stock.
But there are bearish arguments against the stock. First, some investors believe that competition will eventually erode Nvidia’s advantage. However, AMD And Intel have already launched their competing AI accelerators, and so far they don’t seem to be a threat to Nvidia.
AMD shares fell after its third-quarter earnings report on disappointing expectations, and it said it would lay off 4% of its workforce. Intel, meanwhile, is facing a wide range of challenges after announcing a massive restructuring in August.
Nvidia’s data center revenue has now reached $120 billion, and with built-in competitive advantages like the CUDA software library, this may be impossible to capture.
Another bearish view centers on concerns about the formation of an “AI bubble” as Wall Street is eager to see more revenue from Nvidia’s customers, including cloud hyperscalers.
But the chipmaker’s report should also undermine that narrative, as the company experiences demand from a wide range of companies, which use AI for purposes far beyond large language models.
Asked about the limitations of scaling large language models, CEO Jensen Huang said scaling continues and goes beyond the conventional focus in training to post-training and inference.
While there is always a risk of a bubble forming in any high-growth asset class, Nvidia’s results indicate there are no signs of a pullback so far, nor do they appear to be any underlying structural concerns.
Following its third-quarter report, Nvidia now trades at a price-to-earnings (P/E) ratio of 55, which is roughly double that of the S&P500but the company is growing so quickly that the underlying statistics don’t really tell the story.
It reported adjusted earnings per share of $0.81 in the third quarter, and extrapolating that over four quarters would give it a price-to-earnings ratio of 44, which seems to more accurately reflect its existing valuation.
Even forward estimates don’t seem to be the best indicator, as Nvidia regularly exceeds them. Currently, the consensus is calling for earnings of $4.31 per share in fiscal 2026, which ends in January 2026. Based on that forecast, the stock has a forward price-to-earnings ratio of just 34.
However, over the last four quarters, Nvidia has beaten consensus EPS by an average of 9%. If it continues this pattern, the company will post earnings per share of at least $4.70 next year, giving it a forward price-to-earnings ratio of 31, almost on par with the broader market.
These ratios don’t even take into account the chipmaker’s rising growth, as earnings per share are still doubling year-over-year.
To reach a market cap of $4 trillion, the stock would need to rise only 14% from here, which seems entirely possible by the end of the year.
Nvidia just delivered another flawless set of results and remains the dominant force in the next big computing platform. The company will reach a market cap of $4 trillion at some point. The only question is when.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: Short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
Will Nvidia Reach $4 Trillion? 3 reasons why this could happen by the end of the year. was originally published by The Motley Fool
