Nvidia Exceeded Anticipations in Q3. Historical Trends Indicate Potential Stock Movement in the Following Quarters.
Nvidia (NVDA dropping by 2.55%) adhered to its traditional ways when it released its third-quarter earnings recently. By this, I mean it once again surpassed earnings projections, an accomplishment it has maintained for at least the past four quarters. It's not hard to understand why Nvidia has been consistently outperforming, offering investors impressive surprises quarter after quarter. As a market leader in one of today's hottest sectors: artificial intelligence (AI), Nvidia stands out.
Nvidia boasts an 80% share in the AI chip market and has constructed an AI empire by offering a wide variety of products and services. This diversification has helped Nvidia achieve triple-digit data center revenue growth in recent quarters. The company's profitability is also noteworthy, boasting margins over 70%. Nvidia's shares have seen significant growth in recent times, and 2023 is no exception, with the stock poised for a gain of approximately 200%.
Now, you may be wondering what the future holds for this thriving stock. Will it escalate or descend? Is now an opportune moment to invest, or has the window closed? Let's use history as a guide.
Nvidia's earnings report
Before delving into the future, let's analyze Nvidia's recent earnings report. As mentioned, Nvidia surpassed both earnings per share (EPS) and revenue expectations in the fiscal 2025 third quarter. It reported diluted EPS of 81 cents, surpassing estimates of 75 cents, and announced record revenue of more than $35 billion, exceeding estimates of around $33 billion.
Nvidia's total revenue growth slowed from the triple digits in former quarters to a 94% gain this quarter. Remember, comparison quarters can become challenging given Nvidia's impressive revenue growth in recent times. Hence, it's to be expected that growth rates aren't as high as they were a year ago. And this should not be perceived as a red flag.
To further support this argument, we should examine the demand for Nvidia's upcoming release, the Blackwell architecture and chip. The demand outstrips supply, and the company expects this trend to persist into the following year. It's evident that customers are gravitating towards Nvidia for their AI requirements -- and perhaps to an even greater extent than before, as some, such as Meta Platforms, have shared plans to boost their AI investment budgets.
And talking about Blackwell, Nvidia is ramping up production in this quarter and anticipates generating billions of dollars in revenue from the platform during this period. Consequently, Blackwell should serve as a catalyst for Nvidia in the current fourth quarter and beyond.
Lessons from the past
Now, let's examine what history reveals about share performance ahead. In the two months following the release of the past four earnings reports (excluding the latest one), the stock has risen by double digits each time. After releasing its first- and second-quarter reports in this fiscal year, Nvidia climbed by 30% and 11%, respectively. And following the release of its third- and fourth-quarter reports in the last fiscal year, the stock increased by 19% and 12%, respectively.
This trend suggests that if Nvidia adheres to its historical pattern, the stock may surge over the next two months.
Does this make the stock a buy? I view Nvidia as a remarkable AI stock to buy now, but not because of this reason. Keep in mind that stocks don't always follow historical trends, so it's uncertain whether Nvidia will indeed rise over the next two months. Investing in a stock with the hope of a short-term gain is risky and may not steer you towards wealth.
Nvidia's long-term performance
Instead, it's more useful to consider Nvidia's long-term prospects. Will the stock thrive in the years ahead? And based on the evidence, the answer is "yes." Nvidia dominates a rapidly growing market and has pledged to continuously innovate to preserve its edge -- it has proven its ability to do so through launches in recent years, from the Hopper architecture to the latest H200 GPU.
Today's $200 billion AI market is projected to reach $1 trillion by the end of the decade, and Nvidia is likely to profit from this expansion.
Regardless of whether history proves accurate and Nvidia advances in the near future, or if the stock falters or declines, it ultimately doesn't matter. What truly matters is its trajectory in the coming years -- and based on that timeframe, there's reason to be optimistic about this AI titan.
Nvidia's impressive earnings report once again highlighted its potential as an investment opportunity, with diluted EPS of 81 cents and record revenue of over $35 billion, surpassing expectations. This strong performance has led some companies, such as Meta Platforms, to boost their AI investment budgets, potentially fueling further demand for Nvidia's products.
Considering Nvidia's historical trend, the stock has seen significant gains in the two months following its past four earnings reports, indicating a potential for further growth. However, it's important to remember that investing based on historical trends can be risky, and stocks do not always follow the same pattern in the future. Instead, focusing on Nvidia's long-term prospects, such as its dominance of the rapidly growing AI market and commitment to innovation, may offer a more reliable indicator of its potential for success.
