NVIDIA Corporation (NVDA) has recently released impressive third-quarter earnings that outshone analysts’ expectations. The company reported revenue of $35 billion for the quarter, marking a remarkable 94% increase compared to the previous year and a 17% rise from the previous quarter. This success translated into adjusted earnings per share (EPS) of $0.81, exceeding analysts’ predictions of $33.2 billion in revenue and an EPS of $0.74.
Reflecting on past performance, NVDA’s stock price was around $125 just three months ago when the company announced revenue of $30 billion, a 122% year-over-year growth. At that time, the company had projected a revenue expectation of $32.5 billion for the current quarter. However, after an initial drop to $101, the stock rebounded, closing at over $145. Ultimately, this translated to a return of approximately 16% over the past three months, closely paralleling its quarter-over-quarter revenue growth of 15%.
In its latest announcement, NVIDIA revised its expected revenue upward, reporting $35.1 billion, surpassing guidance estimates from three months ago. The company also indicated a strengthened growth trajectory, with a quarter-over-quarter revenue growth rate increasing to 17% and guidance of $37.5 billion for the next quarter. If this trend continues, there’s potential for quarterly revenue to exceed $40 billion, which could drive the stock price up by another 16-17% over the next three months, possibly reaching $170.
Despite these strong short-term projections, concerns remain about NVIDIA’s long-term valuation. With a market capitalization nearing $3.6 trillion, expectations suggest the company could reach over $4 trillion in three months. This implies that investors are anticipating around $200 billion in annual earnings as NVIDIA matures, akin to Alphabet Inc (GOOGL), which trades at a forward P/E of 20. There is debate about whether it is feasible for NVIDIA’s quarterly profits to soar from the current $19.3 billion to $50 billion in a few years while maintaining similar growth rates to GOOGL.
While optimistic about NVIDIA’s short-term potential as an AI investment, there are other AI stocks that may offer higher long-term returns. For those intrigued by promising AI investments but seeking options trading below five times earnings, there are various opportunities to explore.
In summary, NVIDIA’s recent earnings performance illustrates the company’s resilience and exceptional growth in a competitive market. Despite speculation about future growth sustainability, the current indicators showcase a company at the forefront of the AI revolution. Investors should remain vigilant, weighing short-term gains against long-term viability as they navigate this dynamic sector.