Why Nvidia’s Story is Far From Over

Key points:

• Nvidia Delivers Another Earnings Beat: Nvidia exceeded expectations with $35.08 billion in revenue, a 94% year-over-year increase, driven by strong performance in its data center business, which more than doubled to $30.8 billion. The company also posted a solid adjusted EPS of $0.81, surpassing the forecast of $0.74.
• Guidance and Blackwell Rollout Details Underwhelmed: Despite the strong quarter, Nvidia's Q4 guidance of $37.5 billion, with a possible +/- 2% range, raised some concerns as it could fall short of analyst expectations. Additionally, the rollout of its new Blackwell chips lacked specifics, with the company admitting supply issues that would prevent meeting demand in the near term, which could limit short-term growth potential.
• Long-Term Prospects Remain: Nvidia continues to be a key player in the booming AI industry, with its GPUs powering 95% of global AI models. The company’s substantial cash reserves of $38.5 billion provide the flexibility to invest in further innovation or increase shareholder returns. While competition and supply risks are present, Nvidia’s position at the center of the AI megatrend makes it well-positioned for long-term growth.

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Stellar Growth Meets Lofty Expectations

Nvidia just delivered another standout quarter, significantly beating expectations:

• Revenue: $35.08 billion (+94% year-on-year), surpassing estimates of $33.25 billion.
  • Data Center Revenue: $30.8 billion (more than double from $14.51 billion last year), topping expectations of $29.14 billion.
• Adjusted Gross Margin: Held steady at a robust 75%, as expected.
• Adjusted EPS: $0.81 per share, beating the estimate of $0.74.

Despite these stellar results, the market’s reaction has been muted, highlighting the sky-high expectations for Nvidia. With a market value of $3.6 trillion, Nvidia is the largest chipmaker in the world and accounts for 7% of the S&P 500 index. Its stock trades at 37 times expected earnings, compared to 28 times for AMD and 29 times for Intel, meaning investors are paying a premium for Nvidia’s leadership. This also sets a very high bar for the company to impress.

What didn’t go so well?

Guidance Slightly Underwhelms: Nvidia’s Q4 FY 2025 revenue guidance at $37.5 billion came with a caveat of +/- 2% which implies a range of $36.75 billion to $38.25 billion. Comparing it against the consensus estimate of $37.1 billion, the lower bound means that next quarter revenue could fall below guidance. This is underwhelming especially when you consider that the Nvidia has outperformed revenue expectations by about $2 billion in the past 6 quarters.

Blackwell Rollout Lacks Detail: Nvidia has begun delivering its highly anticipated Blackwell chips, projecting “several billion dollars” in Q4 revenue. Investors had been watching Blackwell’s supply pipeline and whether it will be able to meet the strong demand, as well as Blackwell’s pricing and whether that will be below the current pricing structure. While details on future margins remain unclear, Nvidia has acknowledged supply challenges, signaling it won’t be able to meet demand for Blackwell in the coming quarters. This could limit short-term growth, but it reinforces the scale of the opportunity that lies ahead for long-term investors.

Nvidia’s Long Term Prospects Remain Strong

Strong Positioning: Nvidia is in a unique position of strength. Supply constraints keep GPU prices high, and demand for its new Blackwell chips is already expected to exceed “several billion dollars” in Q4.

Global AI Push: Governments from Saudi Arabia to Denmark are investing heavily in AI, reducing Nvidia’s dependence on Silicon Valley. This diversification strengthens its long-term growth story.

Huge Cash Pile: Nvidia’s profitability is a hefty 60%+ and its cash reserves are skyrocketing, rising to $38.5 billion in the recent quarter from $18.3 billion a year ago. This gives the company significant resources to reinvest in R&D and innovation, setting the stage for sustained dominance. given Nvidia’s size, major acquisitions seem unlikely, potentially paving the way for increased investor returns through buybacks or dividends.

AI Megatrend: Nvidia powers 95% of AI models globally, and the AI revolution is just beginning. With applications spanning autonomous vehicles, data centers, healthcare and more, Nvidia is at the heart of a multi-trillion-dollar opportunity.

Risks to Watch

Competition Intensifying: The attractiveness of structural AI theme as well as Nvidia’s supply constraints could attract strong competition. AMD, Intel, and new entrants are ramping up their AI chip capabilities. Additionally, companies like Google and Amazon are developing in-house solutions, which could chip away at Nvidia’s market share over time.

From Scarcity to Oversupply: Nvidia’s current strength is built on high demand outstripping supply. However, a capacity glut could emerge if production scales up too aggressively, shifting the narrative from scarcity-driven margins to oversupply challenges. This doesn’t seem likely in the short-run, but markets could get cautious and react if supply starts to pick up.

Macroeconomic Sensitivity: With tech valuations already stretched, any broad economic slowdown or higher-for-longer interest rates could weigh heavily on the sector.

Geopolitical Risks: As AI becomes a critical and strategic tool for governments globally, geopolitical tensions could create headwinds, from restrictions on exports to competition from China.

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