Nvidia (NVDA 2.15%) has been in sizzling form on the stock market in 2024, thanks to the stunning growth the company has been clocking quarter after quarter, which explains why the market was awaiting its fiscal 2025 third-quarter results (for the three months ended Oct. 27) with bated breath.
The semiconductor giant’s report came out on Nov. 20, and not surprisingly, it delivered stronger-than-expected results on the back of healthy demand for its graphics processing units (GPUs) that are being used in data centers to train and deploy artificial intelligence (AI) models. However, the initial investor reaction to the company’s earnings seems to be negative, as the stock has headed lower in the two sessions following its results.
Does this mean Nvidia’s red-hot rally has hit a speed bump? Or will the stock overcome this hiccup and resume its journey north to deliver more gains to investors in 2025? Let’s find out.
Deciphering Nvidia’s results and guidance
Nvidia reported record quarterly revenue of $35.1 billion in fiscal Q3, an increase of 94% from the year-ago period. The number was well ahead of the company’s guidance of $32.5 billion and also beat consensus estimates of $33.17 billion. Nvidia’s non-GAAP (generally accepted accounting principles) earnings increased by 103% from the prior-year period to $0.81 per share, which was well ahead of the $0.75-per-share consensus estimate.
The guidance was the icing on the cake, as Nvidia expects fiscal Q4 revenue to land at $37.5 billion at the midpoint. That was slightly higher than the $37 billion Wall Street estimate. However, the stock slipped in premarket trading for a couple of reasons.
First, Nvidia’s revenue guidance for the current quarter would translate into a year-over-year increase of almost 70% from last year’s reading of $22.1 billion. That points toward a relative slowdown in the company’s growth. Second, the company has guided for a non-GAAP gross margin of 73.5% for the current quarter. That figure stood at 76.7% in the year-ago period.
Savvy investors, however, should consider looking past both these factors. The company is still growing at a terrific pace, despite having achieved a huge revenue base already. A year-over-year jump of 70% in revenue, though slower than previous quarters, is still quite solid when we consider that its primary rival with a smaller revenue base, AMD, has been growing at a much slower pace.
Also, the margin pressure isn’t going to last long. The reduced margin Nvidia is forecasting for the current quarter is attributable to the production ramp of its next-generation Blackwell AI chips. The company is looking to maximize output in a bid to meet the huge demand for these chips, and that’s going to have a short-term impact on margins.
As CFO Colette Kress remarked on the latest earnings conference call:
Our current focus is on ramping to strong demand, increasing system availability, and providing the optimal mix of configurations to our customer. As Blackwell ramps, we expect gross margins to moderate to the low 70s. When fully ramp[ed], we expect Blackwell margins to be in the mid-70s.
The short-term margin pressure should not linger for long, as Nvidia says that the demand for its Blackwell processors is “staggering,” which is why it is “racing to scale supply to meet the incredible demand… [from] customers.”
The good part is that Nvidia expects to deliver more Blackwell chips than it was originally expecting in 2024. Even then, the company points out that the demand for these chips will continue to exceed supply, and it will continue to work on improving production in 2025. Nvidia is expecting its Blackwell revenue to continue increasing with each quarter going into next year, and it is expected that the quarterly revenue from the chips made on the latest architecture will exceed the previous generation Hopper architecture in April next year.
Once the transition from Hopper to Blackwell is complete and Nvidia manages to produce enough of these chips to catch up to the massive demand it’s witnessing, it should be able to maintain the healthy growth in its revenue and earnings in 2025, and beyond.
Analysts are expecting stronger growth from Nvidia next year
Nvidia’s fiscal Q4 guidance indicates that it is on track to finish the year with $123.5 billion in revenue (adding the Q4 guidance to its revenue in the first nine months of fiscal 2025). Management’s comments seem to have given analysts confidence that it will be able to deliver another solid performance next year.
As the chart shows, Nvidia’s revenue estimates for fiscal 2026 (which will begin from the end of January 2025) have moved up.
NVDA Revenue Estimates for Current Fiscal Year data by YCharts
Meanwhile, analysts are expecting the company’s bottom line to grow another 48% in fiscal 2026 to $4.27 per share. However, if demand for Blackwell processors remains strong and contributes significantly to its top line, there is a good chance that it will be able to exceed Wall Street’s forecasts. After all, Nvidia has beaten consensus earnings estimates in each of the last four quarters by consistently delivering stronger-than-expected growth.
Blackwell could help it maintain that trend next year, which is why investors can still continue holding shares of Nvidia, or even buy more of it. That’s because Nvidia is currently trading at 33 times forward earnings, which is close to the tech-laden Nasdaq-100 index’s forward earnings multiple of 31.3. If Nvidia manages to deliver stronger earnings growth and the market decides to reward it with a premium valuation, it should be able to deliver more upside in 2025.
