NVIDIA Corporation (NVDA) just reported its latest earnings results. Nvidia’s third-quarter earnings report exceeded expectations, with revenue reaching $35 billion, up 94% year-over-year and 17% quarter-over-quarter. This strong performance translated into adjusted earnings per share (EPS) of $0.81, surpassing analysts’ forecasts of $33.2 billion and $0.74, respectively.
Why were analysts wrong again about NVDA? To answer this question, we have to revisit what happened last quarter. Three months ago, NVDA shares were trading at $125 and NVDA announced revenue of $30 billion, up 122% year-over-year and 15% quarter-over-quarter. The company also told investors that it expects this quarter’s revenue to be around $32.5 billion. NVDA stock initially plunged all the way down to $101 but ended up above $145 at today’s closing. Basically, the stock returned around 16% over the last 3 months which is almost identical to its quarter-over-quarter revenue growth rate of 15%.
A couple of hours ago NVDA announced that it generated $35.1 billion in revenue instead of the $32.5 billion it guided just 3 months ago. Its quarterly revenue growth rate actually accelerated from 15% to 17%, and the company guided for $37.5 billion in revenue for the current quarter. You know what this means? It will probably generate more than $40 billion in quarterly revenue and NVDA’s share price will probably return another 16-17% over the next 3 months and hit $170. I haven’t seen any signs of a slowdown in demand for NVDA’s chips.
I am Insider Monkey’s co-founder and its research director. We have been recommending a long position in NVDA since May of 2023 and the stock’s performance has been good to our subscribers. I also personally own a small position in NVDA shares. I believe NVDA stock will continue to outperform the market in the next 3 months, but this doesn’t mean that it is a great long-term investment. The stock’s current market cap is nearly $3.6 trillion and if I am right it will exceed $4 trillion in 3 months. This means investors expect NVDA to earn around $200 billion per year once it becomes a more mature company like Alphabet Inc (GOOGL) which is currently trading at a forward P/E multiple of 20. Is it reasonable to assume that NVDA’s quarterly profit can go from $19.3 billion today to $50 billion in a few years and then continue to grow at the same rate that GOOGL’s quarterly profit is growing?
While I acknowledge the potential of NVDA as a short-term AI investment, my conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns over the longer term. If you are looking for an AI stock that is as promising as NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: Long NVDA. This article was originally published at Insider Monkey.