One of the most profound changes in the technological landscape in recent years has been advances in the field of artificial intelligence (AI). There is a strong argument that the arrival of AI early last year was one of the biggest sparks that sparked the current bull market rally. ChatGPT announced the arrival of generative AI and, since its launch in November 2022, the S&P 500 has increased by 46%, while the Nasdaq Composite has increased by 67% (at the time of writing).
While there have been many beneficiaries of these secular tailwinds, one of the most notable has been NVIDIA (NASDAQ: NVDA). Simply put, the company’s graphics processing units (GPUs), which were originally developed to create realistic visuals in video games, have proven to be equally adept at powering AI models.
The resulting run on Nvidia chips drove incredible financial results and sent the stock into the stratosphere. Since the beginning of last year, Nvidia shares have risen more than 900% (as of market close on Thursday), making the company a stock market darling.
Nvidia has a lot riding on its financial results next week. Let’s look at the lead-up to this critical quarter, what Wall Street is saying and what investors should expect.
As technologists began to understand the implications of generative AI in early 2023, demand for Nvidia’s AI-centric processors went from zero to 60 in just a few months. In the second quarter of the company’s fiscal 2024 year (which ended July 30), the results were nothing short of astonishing. Nvidia generated record revenue of $13.5 billion, up 101% year over year, while its adjusted earnings per share (EPS) of $2.70 soared 429%. EPS in generally accepted accounting principles (GAAP) terms was even more surprising, up 854%.
The next four quarters were equally impressive, with record triple-digit sales and profit growth in each. Nvidia’s second quarter of fiscal 2025 (which ended July 28) was the last of the streak. Record revenue of $30 billion increased 122% year over year, while adjusted EPS of $0.68 soared 152%. It’s worth noting that investors were concerned about Nvidia’s gross margin, which declined but was a record set in the second quarter.
Astute investors knew the company’s triple-digit streak 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 forecasts revenue of $32.5 billion, which would represent year-over-year growth of 79%.
That would mark a clear slowdown compared to its recent growth rate, and shares initially sold off on the news. However, in the three months since that report, cooler heads have prevailed and Nvidia stock has once again approached all-time highs.
The biggest driver of Nvidia’s future results is the upcoming release of its AI-focused 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 processors was “insane.” He went on to say, “Everyone wants to have the most and everyone wants to be first.” Chief Financial Officer Colette Kress had previously stated: “In the fourth quarter, we expect to ship several billion dollars in revenue from Blackwell.”
Nvidia’s strong track record of innovation has kept the company at the forefront of the AI revolution, and it looks like that won’t change anytime soon.
Ahead of Nvidia’s critical report next week, Wall Street remains decidedly optimistic. Analyst consensus estimates call for revenue of $33 billion, or growth of about 82%. Nvidia has a strong track record of exceeding its own and Wall Street’s expectations, so results could be stronger.
Of the 63 analysts who have offered an opinion on Nvidia so far in November, 94% rate the stock as a buy or strong buy, and none recommend selling. 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, although not to the same degree as over the past year.
However, in recent days and ahead of Nvidia’s earnings report, analysts have been quick to update their models, resulting in numerous price target increases this week (12, by my count). Each of these target price increases has been higher than the current consensus of $157, suggesting that Wall Street is becoming even more bullish.
Analysts were nearly unanimous in their comment, citing the rapid adoption of AI and the building of more robust data centers to handle growing demand. Additionally, most analysts believe Nvidia was conservative with its guidance, giving the company room to beat expectations.
One of the more bullish opinions comes courtesy of 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 than before about Jensen Huang’s upcoming chip,” he wrote in a note to clients earlier this week.
For investors tempted to sell the stock, analyst says: ‘Give up on Nvidia here after its success – Hopper [AI chip] – it’s like giving up Apple on the iPhone 1 or 2.” He went on to call this a “once in a lifetime opportunity,” saying Nvidia is a “must have.”
Taken together, this suggests that Wall Street remains remarkably optimistic about Nvidia’s prospects, and rightly so. Even the most conservative estimates of the market opportunity represented by generative AI typically start at around $1 trillion, and many are much higher. Until now, competitors have not been able to develop a solution that even comes close to Nvidia in terms of performance, so its GPUs are laying the foundation for the AI revolution.
To be clear, I’m bullish on Nvidia and think the stock has a lot more to go up from here. That said, I am also aware of the volatility that is sure to follow in the coming weeks and months. If you have any doubt, remember that earlier this summer, Nvidia stock lost 27% of its value in a few weeks, only to come back strong and set new all-time highs.
Finally, there is the valuation to consider. Wall Street predicts that Nvidia will generate EPS of $4.16 in its fiscal 2026 year, which begins in late January. That means the stock currently sells for about 34 times next year’s earnings. While it’s a slight premium, consider this: Nvidia’s revenue has increased 868% over the past five years, while its net income has increased 1,650%. This has driven a share price increase of 2,610% (at the time of writing). This illustrates quite clearly 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 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
