The AI chip superstar delivered another round of surprising results, easily beating estimates in its third-quarter earnings report on Nov. 20.
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Revenue rose 94% in the quarter to $35.1 billion, beating the consensus of $33.1 billion, and adjusted earnings per share (EPS) more than doubled, from $0.40 to $0.81 , above estimates of $0.75.
Shares retreated slightly 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. an increase of 70% compared to the quarter of the year. back.
At the time of 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 could happen sooner than you think.
Image source: Getty Images.
Nvidia has reported surprising revenue growth since the launch of ChatGPT. In fact, this was the first time in six quarters that the company failed to achieve triple-digit sales growth, although you won’t hear any complaints about a 94% increase in revenue.
Even as Nvidia’s growth naturally moderates, the amount of revenue it adds each quarter continues to expand, showing that the business is still accelerating. But what’s even more impressive is that its revenue growth in the third quarter doesn’t reflect the underlying demand for its product. This continues to exceed supply, which is limited by Semiconductor manufacturing in Taiwanthe ability to produce its chips.
On the third quarter earnings conference call, CFO Colette Kress described demand for the new Blackwell platform as “staggering” and demand for the legacy Hopper platform as “exceptional.”
Speaking about the Blackwell platform, he added: “We are racing to scale supply to meet the incredible demand that customers are putting at us” and predicted that demand for Blackwell would exceed supply for several quarters in fiscal 2026.
It’s impossible to quantify the company’s demand, but its quarterly revenue should be viewed as a basis for its potential revenue rather than 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 fell in the 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 They have already released their competing AI accelerators and so far they don’t seem like a threat to Nvidia.
AMD shares fell after its third-quarter earnings report on disappointing guidance, and it said it would lay off 4% of its workforce. Meanwhile, Intel faces a wide range of challenges after announcing a massive restructuring in August.
Nvidia’s data center revenue rate has now reached $120 billion, and with built-in competitive advantages like its CUDA software library, reaching it may be impossible.
Another bearish view cites concerns about the formation of an “AI bubble,” as Wall Street is eager to see more revenue from Nvidia customers, including cloud hyperscalers.
But the chipmaker’s report should also reject that narrative because the company is seeing demand from a wide range of companies, which are using AI for purposes that go far beyond large language models.
When asked about scaling limitations on large language models, CEO Jensen Huang responded that scaling continues and goes beyond its conventional focus on training toward 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 there appear to be any underlying structural concerns.
Following the third quarter report, Nvidia is now trading with a price-to-earnings (P/E) ratio of 55, which is roughly double that of the S&P 500but the business is growing so fast that the bottom line metrics don’t really tell the story.
It reported adjusted EPS of $0.81 in the third quarter, and extrapolating that over four quarters would yield a P/E of 44, which appears to be a more accurate reflection of its current valuation.
Even advance estimates don’t seem to be the best indicator, as Nvidia regularly beats them. Currently, the consensus calls for earnings of $4.31 per share in fiscal 2026, which ends in January 2026. Based on that forecast, the stock has a forward P/E of just 34.
However, over the last four quarters, Nvidia has outperformed the per-share consensus by an average of 9%. If that pattern continues, the company will generate EPS of at least $4.70 next year, giving it a forward P/E of 31, about on par with the broader market.
Those ratios don’t even take into account the chipmaker’s breakneck growth, as its EPS is still doubling year over year.
To reach a market cap of $4 trillion, the stock would only need to gain 14% from here, which seems very possible by the end of the year.
Nvidia just delivered another flawless round of results and remains the dominant force in the next big computing platform. The company will reach a market capitalization 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 has positions and recommends Advanced Micro Devices, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: Short November 2024 calls for $24 on Intel. The Motley Fool has a disclosure policy.
Will Nvidia reach $4 billion? Three reasons why it could happen before the end of the year. was originally published by The Motley Fool
