It’s been two years since OpenAI launched ChatGPT, and there’s no doubt 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 capable of powering AI applications like ChatGPT, it has seen its stock rise 10x 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.
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Despite concerns that it would be overtaken by the competition or that the AI megatrend was inflating a bubble that would eventually burst, Nvidia has continued to deliver spectacular results, and that pattern was on display once again in its third-quarter earnings report. of fiscal year 2025 that he delivered. Wednesday.
Total revenue in the quarter rose 94% year over year to $35.1 billion, beating 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 its graphics processing units (GPUs) continues to outstrip supply.
Profits also increased as the company continued to gain leverage on its operating expenses. 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 estimate consensus of $0.75.
Image source: Nvidia.
Never before in history has a company as large as Nvidia grown so fast. Surprisingly, its revenue growth of 94% was its slowest pace in percentage terms in six quarters, but it is maintaining breakneck growth rates for much longer than analysts expected. The amount of revenue in dollar terms it adds each quarter is also increasing sequentially, so the business’s actual growth is accelerating even as its percentage growth moderates.
Earlier this year, some analysts questioned whether the level of dominance Nvidia had established in the AI chip sector was sustainable. Advanced microdevices 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 stock hit a 20-year low.
At this point, the key constraint to Nvidia’s growth is on the supply side, as CEO Jensen Huang recently said that demand for its latest GPUs, built with its new Blackwell architecture, is “insane.”
Describing demand for Blackwell chips on the earnings call, Chief Financial Officer Colette Kress said, “Every customer is competing to be the first to market.”
Management highlighted how broad Blackwell’s reach is in terms of applications and customer base, and how vast its partner ecosystem is. “[A]”Almost every company in the world seems to be involved in our supply chain,” Huang said.
Beyond concerns that rivals could move against it, the other bearish argument about Nvidia revolves around the idea of an “AI bubble.” Some observers think that market demand for AI applications will not justify the huge capital expenditures on AI infrastructure that are driving Nvidia’s growth.
However, when asked about it on the earnings call, Huang rejected the idea that AI is reaching scale limitations, saying, “The pre-training scale of our base model is intact and continuing.” He also said post-training and inference at scale was key for large language models and other AI models to become more capable.
Having successfully withstood competition from AMD and Intel and delivered another spectacular quarter, Nvidia appears unstoppable.
Its fourth-quarter forecasts call for another revenue increase to $37.5 billion, up 70% from the previous quarter, even as “demand far outstrips supply.” Huang has outlined a vision for the future that has Nvidia technology at the center of AI. Factories (data centers responsible for driving artificial intelligence applications) and companies of all types are competing to reach that future.
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, that misinterprets the business. Based on its run-rate EPS, the stock is trading at a P/E ratio of 45 and its earnings are likely to soar over the next year. Relative to its growth rate, the stock doesn’t look overly expensive.
Nvidia remains at the helm of the AI revolution and the stock still looks like a strong buy.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Advanced Micro Devices, Intel and Nvidia. The Motley Fool recommends the following options: Short November 2024 calls for $24 on Intel. The Motley Fool has a disclosure policy.
Can anything stop Nvidia? was originally published by The Motley Fool
