Challenging the Dominance of Nvidia: Unrelenting Competition in the Tech Sector
We're now two years past OpenAI launching ChatGPT, and it's clear that one company has reaped the most benefits from the generative AI advancement thus far.
Nvidia (NVDA -2.69%), renowned for manufacturing advanced chips to power AI applications like ChatGPT, has seen its stock skyrocket by 10 times since 2023's start, making numerous investors quite wealthy. This month, it reclaimed its title as the world's most valued company, boasting a market cap exceeding $3.5 trillion.
Despite concerns that escalating competition or the AI trend's inflation bubbling and eventually bursting might hinder Nvidia, it has consistently delivered exceptional results, consistently outperforming expectations. These impressive showings were evident once more in the fiscal 2025 third-quarter earnings report they released last Wednesday.
The quarter's total revenue surged by 94%, reaching $35.1 billion, surpassing the projected $33.1 billion. The data center segment, which witnessed a 112% increase to $30.8 billion, contributed to this growth, with demand for its graphics processing units (GPUs) outpacing supply.
Furthermore, profits saw a significant surge as the company further optimized its operating expenses. On a generally accepted accounting principles (GAAP) basis, operating income increased by 110% to $21.9 billion, while adjusted earnings per share rose to $0.81, surpassing the consensus estimate of $0.75.
Nvidia: The Omnipresent Giant
Historically, few companies as massive as Nvidia have grown at such a phenomenal pace. Astoundingly, Nvidia's 94% revenue growth represented its slowest pace in six quarters. However, it continues to maintain remarkable growth rates for longer than anticipated, adding billions of dollars in revenue sequentially while moderating its percentage growth.
Earlier this year, some analysts questioned whether Nvidia's dominance of the AI chip sector would persist. Advanced Micro Devices and Intel have entered the fray with their own AI accelerators. However, they have been unable to make significant inroads, with AMD disappointing investors with its earnings report and announcing layoffs earlier this month, while Intel underwent a major restructuring after its stock plummeted to a 20-year low.
At this juncture, Nvidia's primary obstacle is supply-side constraints, as CEO Jensen Huang explained that demand for their latest GPUs, constructed using their new Blackwell architecture, is "astronomical."
During the earnings call, CFO Colette Kress summed up the demand for Blackwell chips by stating, "Every customer is eager to be the first to enter the market." Management emphasized the vast applications and customer base that Blackwell reaches, as well as its extensive partner ecosystem. "[A]ll but one company in the world seems to be involved in our supply chain," Huang said.
Beyond the possibility of rivals encroaching upon its market share, the other significant challenge surrounding Nvidia revolves around the prospect of an "AI bubble." Some market observers believe that market demand for AI applications won't justify the substantial capital expenditures fueling Nvidia's growth.
However, when asked about this during the earnings call, Huang dismissed the notion that AI had reached scaling limitations, stating, "Our foundation model pre-training scaling persists, and it's continuing." Furthermore, he emphasized that strengthening post-training and inference scaling was necessary for more capable large language models and other AI models.
Nvidia: Buy or Sell?
Having successfully thwarted competition from AMD and Intel, and delivered another stellar quarter, Nvidia appears unstoppable.
Its projections for the fourth quarter call for revenue to surge to $37.5 billion, representing a 70% increase from the previous year despite "demand exceeding supply." Huang envisions a future where Nvidia's technology is central to AI factories—data centers devoted to AI applications—and numerous companies are striving to realize this vision.
Nvidia's stock experienced a slight dip in after-hours trading on Wednesday, but this seemed to be a reflection of the stock's valuation and guidance. However, viewing the business in this light overlooks its strong run-rate EPS, which supports the stock's P/E ratio of 45. Furthermore, its profits are projected to skyrocket over the subsequent year, indicating that the stock remains reasonably priced given its growth rate.
Nvidia remains at the helm of the AI revolution, making its stock an attractive buy.
Despite the potential risks of escalating competition or the AI trend's inflation bubbling and eventually bursting, Nvidia's performance in the finance sector has been exceptional, leading to significant gains for investors. The company's Q3 2025 earnings report showed a 94% surge in revenue to $35.1 billion, mainly driven by the data center segment's 112% increase. This strong financial performance has kept Nvidia's stock attractive for investors interested in the AI and investing in companies that are benefiting from generative AI advancements.
