NVIDIA Corporation recently released impressive earnings for its third quarter, significantly surpassing expectations with revenue hitting $35 billion. This figure marks a remarkable 94% increase compared to the previous year and a 17% rise from the prior quarter. Moreover, NVIDIA recorded adjusted earnings per share (EPS) of $0.81, exceeding both expected revenue of $33.2 billion and an EPS forecast of $0.74.
To understand why analysts have consistently underestimated NVIDIA’s performance, it’s enlightening to look at the previous quarter. Just three months prior, when NVIDIA’s shares were priced at $125, it announced a revenue of $30 billion—up 122% year-over-year and 15% quarter-over-quarter. NVIDIA anticipated revenues of around $32.5 billion for the current quarter, prompting a drop in stock price to $101, despite a recovery to above $145 at closing.
Now, as NVIDIA reveals a revenue of $35.1 billion—besting prior guidance and accelerating its growth from 15% to 17%—the company is projecting even higher revenue of $37.5 billion for the upcoming quarter. Analysts speculate that actual earnings could even exceed $40 billion, suggesting that stock prices could increase by another 16-17% over the next three months, potentially reaching $170. So far, demand for NVIDIA’s chips remains robust, showing little sign of slowdown.
As the co-founder and research director of Insider Monkey, I have been advising a long position in NVIDIA since May 2023, and our subscribers have benefited from the stock’s strong performance. While I hold a small position in NVIDIA, I remain optimistic about its short-term prospects, though caution is warranted regarding its long-term trajectory. Currently valued at nearly $3.6 trillion, NVIDIA could surpass $4 trillion within three months, leading investors to expect annual earnings of around $200 billion. This raises questions about the sustainability of such growth when compared to established companies like Alphabet Inc., which operates at a forward price-to-earnings ratio of 20.
In conclusion, while NVIDIA possesses substantial potential in the AI sector, I posit that there might be other AI stocks that could provide even better long-term returns. Investors searching for promising AI stocks at more attractive valuations should consider diversifying their portfolios beyond NVIDIA.
NVIDIA’s remarkable growth highlights the dynamism of the technology sector, particularly in AI, which continues to drive strong market performance. Investors should remain watchful for opportunities in this evolving landscape.