Few events drive markets higher than a Nvidia (NASDAQ: NVDA ) earnings call, which is usually followed by wild stock price swings. This is not surprising, considering that its market cap of $3.58trn is the largest of all FTSE 100. As the multibillion-dollar artificial intelligence (AI) industry depends on corporate computing, much hangs in the balance.
The stock has gained more than 200% this year and the company shows no signs of slowing its business growth. Yesterday’s results (20 November) were relatively good, considering the price dropped 15% after its last earnings call. And that was not a bad result!
But with Nvidia delivering so much lately, analyst expectations are high.
Results
At $0.78, earnings per share (EPS) beat analyst expectations of $0.74, while revenue came in at $35.08bn, ahead of the $33.25bn expected.
In comparison, in Q3 2023, EPS was $0.40 and revenue was $18.12bn.
Q4 revenue guidance also came in slightly above estimates at $37.5bn. However, the stock was down 2.5% in after-market trading.
Growth drivers
Nvidia’s big news this year has been its long-awaited Blackwell AI chips. There were reports this week about the chips potentially overheating but Nvidia says these issues were resolved in the past.
The new flagship graphics processing units (GPUs) are said to be twice as fast as their predecessors, ushering in the next years of faster AI data center performance.
CEO Jensen Huang has already commented that “demand is crazy“, and the chips are already on sale for the next 12 months. This was compounded by a manufacturing issue that delayed shipping until December. These supply issues have been a concern for shareholders.
Key customers include US tech giants such as Amazon, Microsoft again Meta. However, the first company to buy the chips was a Japanese computer giant Softbankplans to build the largest computer in Japan next year.
Business tax issues
Another potential risk is US President Donald Trump’s incoming tariffs, which could increase the cost of importing key components. Taiwan Semiconductor Manufacturing Company (TSMC) – Nvidia’s main supplier. This will add to the already existing risk of political instability in the country. The supply of other key components and materials may also be affected.
If competitors like AMD find a way to stay cheap in the face of trade taxes, Nvidia’s market share could be threatened. Additionally, certain metrics indicate that the stock may be ‘overbought’ and may be triggered for a correction.
Looking ahead
After two extraordinary years in which the stock price increased by almost 900%, forecasts now expect growth to slow down. EPS growth is forecast to exceed 130% this year but decline to 43% next year and only 16% in 2026.
The price increased by 18% in the second half of this year, after growing by 150% in H1. That means it is now unlikely to exceed the 238% growth it achieved in 2023.
However, the pricing-to-earnings (P/E) ratio has also declined, along with much slower growth. This year, it has fluctuated between 50 and 70 – much lower than last year’s majority spent above 100.
Now with a forward P/E of around 40, there is potential for further growth. But after selling my shares earlier this year, it wasn’t enough to convince me to dive in again.
Source link
