Nvidia’s Stunning Quarter: A Dominant Force in AI
The AI chip giant has done it again, delivering another round of impressive results that easily surpassed estimates in its third-quarter earnings report. Revenue soared 94% to $35.1 billion, topping the consensus at $33.1 billion, while adjusted earnings per share (EPS) more than doubled to $0.81, ahead of estimates at $0.75.
A $4 Trillion Milestone in Sight?
As the company’s valuation reaches $3.5 trillion, it’s natural to wonder if it will be the first to hit the $4 trillion mark. Given its current growth trajectory, it’s likely to happen sooner rather than later. Nvidia has been reporting eye-popping revenue growth since the launch of ChatGPT, with even moderate growth still translating to significant revenue increases.
Underlying Demand Outstrips Supply
What’s even more impressive is that Nvidia’s revenue growth doesn’t fully reflect the underlying demand for its products. Demand continues to outstrip supply, which is constrained by Taiwan Semiconductor Manufacturing’s ability to produce its chips. The company’s chief financial officer described demand for the new Blackwell platform as “staggering” and demand for the legacy Hopper platform as “exceptional.”
Wall Street’s Bullish Sentiment
Wall Street is overwhelmingly bullish on Nvidia, with over a dozen analysts raising their price targets on the stock despite a slight pullback after the earnings report. While some bearish arguments exist, such as concerns about competition and an “AI bubble,” Nvidia’s results suggest these concerns are unfounded.
Competitive Advantages
Nvidia’s data center revenue run rate has reached $120 billion, and its built-in competitive advantages, like its CUDA software library, make it difficult for competitors to catch up. AMD and Intel have already launched their competing AI accelerators, but they don’t seem to pose a significant threat to Nvidia.
Valuation: A More Accurate Reflection
Nvidia’s trailing price-to-earnings ratio (P/E) of 55 may seem high, but its business is growing so fast that trailing metrics don’t tell the whole story. Extrapolating its adjusted EPS of $0.81 over four quarters gives a more accurate P/E of 44. Even forward estimates may not fully capture the company’s growth potential, given its history of beating consensus EPS.
The Path to $4 Trillion
To reach a market cap of $4 trillion, the stock would only need to gain 14% from here, which seems very possible by the end of the year. With its dominant position in the next major computing platform, Nvidia is likely to continue its upward trajectory, making it an attractive investment opportunity.
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