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Nvidia Earnings Review: Can Investors Still Buy the Stock?
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Once again, Nvidia (NVDA - Free Report) has reported stellar quarterly earnings, beating analysts’ estimates on both the top and bottom line. This was the smallest beat since the artificial intelligence boom began and it seems analysts are catching up to the realities of Nvidia’s growth. As the market comes to terms with this growth, I believe some of the extremely high returns for the stock may be in the past.
While Nvidia may not replicate its extraordinary 100% annual returns seen in recent years, I believe it still stands out as a compelling investment for the future. The company maintains incredible growth forecasts, a reasonable valuation, and a powerful business model.
Here, we will review the earnings results, address Nvidia’s potential as an investment and identify opportunistic buying levels using technical analysis.
Image Source: Zacks Investment Research
Nvidia Shares Slump on Earnings Results
Nvidia stock is taking some heat following Wednesday's earnings, even though it was an unequivocally strong period. The hours after an earnings report, especially for a stock as popular as Nvidia, can often be subject to short-term market fluctuations, particularly around options expiry, so I don’t put much weight into this immediate response.
Before we get into the earnings report, I would like to do a quick review of Nvidia’s quarterly earnings over the past 18 months. Back at the start of 2023, Nvidia was bringing in a very respectable $6 billion quarterly, primarily from its gaming GPU business. But when CEO Jensen Huang decided to pivot towards supply GPUs and data center products to the burgeoning generative AI industry, sales would inflect vertically.
Six months later quarterly revenues would more than double to $13.5 billion. Then another six months and they would double again to $26 billion. And yesterday, quarterly sales reached a stunning $30 billion, a 15% increase from just the three months prior. This type of growth at this scale is something we will rarely see in public markets, so in hindsight, the trajectory of NVDA stock over the last two years is based completely on reality, despite what many naysayers remark on the growth.
Image Source: Zacks Investment Research
Just as impressive as the sales number are the profits, as Nvidia boasts gross margins of 75% and net margins of 54%. For Q2 FY25, Nvidia reported GAAP earnings per diluted share (EPS) of $0.67, which was a 12% increase from the previous quarter and a 168% increase year-over-year.
Nvidia also ramped up its share buyback program, returning $15.4 billion to shareholders in the first half of fiscal 2025 through repurchases and dividends. The company's Board of Directors authorized an additional $50 billion for future buybacks, underscoring its commitment to returning capital to shareholders.
Nvidia Shares Trade at a Reasonable Valuation
Despite Nvidia’s explosive growth, the stock is currently trading at a forward earnings multiple of 49.5x, which is higher than the market average but below its five-year median of 55.6x. While the valuation may seem elevated, it reflects the company’s dominant position in the AI and data center markets, as well as its ongoing revenue and profit expansion. The stock has priced in a significant amount of future growth, but it still offers a reasonable valuation given the company’s strong earnings trajectory.
Nvidia’s ability to generate record revenues while maintaining impressive margins suggests that its valuation could be justified for investors with a long-term horizon. Although the days of massive upside surprises may be behind us, Nvidia’s leadership in AI, accelerated computing, and data centers ensures it remains a key player in these high-growth industries.
Image Source: Zacks Investment Research
Tactical Trading in Nvidia Stock
As we can see in the chart below, the price action in Nvidia stock has become increasingly volatile over the last three months, with the stock now amid a more than $40 range. For investors who are comfortable using charts to trade, this range can offer tactical spots to look for buying.
From here, investors have two options: buy the breakout above $130 or wait for a pul back to around the $100 level.
Image Source: Zacks Investment Research
Should Investors Buy Nvidia Stock?
As analysts catch up to Nvidia's potential, the chances of large upside surprises may diminish. However, this does not detract from Nvidia's long-term appeal. With earnings per share (EPS) forecasted to grow at an average rate of 38% annually over the next three to five years, Nvidia still presents a compelling growth story for investors.
For those looking to invest in the AI revolution, Nvidia remains one of the most attractive options. While volatility and short-term fluctuations are inevitable, the company's strong fundamentals, leadership in critical markets, and shareholder-friendly capital return program make it a worthy consideration for long-term investors.
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Nvidia Earnings Review: Can Investors Still Buy the Stock?
Once again, Nvidia (NVDA - Free Report) has reported stellar quarterly earnings, beating analysts’ estimates on both the top and bottom line. This was the smallest beat since the artificial intelligence boom began and it seems analysts are catching up to the realities of Nvidia’s growth. As the market comes to terms with this growth, I believe some of the extremely high returns for the stock may be in the past.
While Nvidia may not replicate its extraordinary 100% annual returns seen in recent years, I believe it still stands out as a compelling investment for the future. The company maintains incredible growth forecasts, a reasonable valuation, and a powerful business model.
Here, we will review the earnings results, address Nvidia’s potential as an investment and identify opportunistic buying levels using technical analysis.
Image Source: Zacks Investment Research
Nvidia Shares Slump on Earnings Results
Nvidia stock is taking some heat following Wednesday's earnings, even though it was an unequivocally strong period. The hours after an earnings report, especially for a stock as popular as Nvidia, can often be subject to short-term market fluctuations, particularly around options expiry, so I don’t put much weight into this immediate response.
Before we get into the earnings report, I would like to do a quick review of Nvidia’s quarterly earnings over the past 18 months. Back at the start of 2023, Nvidia was bringing in a very respectable $6 billion quarterly, primarily from its gaming GPU business. But when CEO Jensen Huang decided to pivot towards supply GPUs and data center products to the burgeoning generative AI industry, sales would inflect vertically.
Six months later quarterly revenues would more than double to $13.5 billion. Then another six months and they would double again to $26 billion. And yesterday, quarterly sales reached a stunning $30 billion, a 15% increase from just the three months prior. This type of growth at this scale is something we will rarely see in public markets, so in hindsight, the trajectory of NVDA stock over the last two years is based completely on reality, despite what many naysayers remark on the growth.
Image Source: Zacks Investment Research
Just as impressive as the sales number are the profits, as Nvidia boasts gross margins of 75% and net margins of 54%. For Q2 FY25, Nvidia reported GAAP earnings per diluted share (EPS) of $0.67, which was a 12% increase from the previous quarter and a 168% increase year-over-year.
Nvidia also ramped up its share buyback program, returning $15.4 billion to shareholders in the first half of fiscal 2025 through repurchases and dividends. The company's Board of Directors authorized an additional $50 billion for future buybacks, underscoring its commitment to returning capital to shareholders.
Nvidia Shares Trade at a Reasonable Valuation
Despite Nvidia’s explosive growth, the stock is currently trading at a forward earnings multiple of 49.5x, which is higher than the market average but below its five-year median of 55.6x. While the valuation may seem elevated, it reflects the company’s dominant position in the AI and data center markets, as well as its ongoing revenue and profit expansion. The stock has priced in a significant amount of future growth, but it still offers a reasonable valuation given the company’s strong earnings trajectory.
Nvidia’s ability to generate record revenues while maintaining impressive margins suggests that its valuation could be justified for investors with a long-term horizon. Although the days of massive upside surprises may be behind us, Nvidia’s leadership in AI, accelerated computing, and data centers ensures it remains a key player in these high-growth industries.
Image Source: Zacks Investment Research
Tactical Trading in Nvidia Stock
As we can see in the chart below, the price action in Nvidia stock has become increasingly volatile over the last three months, with the stock now amid a more than $40 range. For investors who are comfortable using charts to trade, this range can offer tactical spots to look for buying.
From here, investors have two options: buy the breakout above $130 or wait for a pul back to around the $100 level.
Image Source: Zacks Investment Research
Should Investors Buy Nvidia Stock?
As analysts catch up to Nvidia's potential, the chances of large upside surprises may diminish. However, this does not detract from Nvidia's long-term appeal. With earnings per share (EPS) forecasted to grow at an average rate of 38% annually over the next three to five years, Nvidia still presents a compelling growth story for investors.
For those looking to invest in the AI revolution, Nvidia remains one of the most attractive options. While volatility and short-term fluctuations are inevitable, the company's strong fundamentals, leadership in critical markets, and shareholder-friendly capital return program make it a worthy consideration for long-term investors.