The GPU maker’s stock continues to beat expectations, but has the company’s growth already peaked?
Artificial intelligence (AI) adoption is progressing rapidly, but some are waiting for the other shoe to drop. A strong U.S. economy and strong quarterly results from several AI companies pushed the Nasdaq Composite Index to a record high last week. But these same factors have some investors questioning whether the bull market has gone too far, too fast.
Nvidia (NVDA 1.99%) has become the de facto standard in the generative AI industry. The company is scheduled to report its fiscal 2025 third-quarter results in three weeks, and it’s safe to say Wall Street is waiting for any clues the report will provide about the state of its AI implementation. Nvidia’s revenue has skyrocketed since the beginning of last year, and its stock price has increased 833% (as of this writing). The rate of decline from the all-time high reached late last month is less than 5%.
Nvidia’s upcoming financial report is receiving a lot of attention, and many shareholders are wondering whether the stock can continue its breathtaking performance. Is the stock worth buying ahead of the November 20th earnings report? Fortunately for investors, data is starting to accumulate that may help answer that question.
Image source: Getty Images.
sunshine on a cloudy day
The key to Nvidia’s incredible success over the past few years has been the performance of its graphics processing units (GPUs). GPUs are the perfect chip to supply the specific types of computing power needed for generative AI and other types of clouds. computing needs. Because of the resources required and the sheer amount of data involved, top-tier AI models are limited to the world’s largest technology companies and cloud providers, most of which are Nvidia customers. Comments made in conjunction with these tech giants’ recent quarterly results provide insight into the current state of the AI revolution, and the evidence is clear.
For example, Microsoft (MSFT 0.99%) said it spent significant amounts to advance its AI agenda in the first quarter of fiscal 2025 (ending September 30). The company’s capital expenditures (capex) were $20 billion, primarily used to support “cloud and AI-related” demand. CFO Amy Hood expects Microsoft’s spending to continue to grow, saying, “We expect capital spending to increase over time given cloud and AI demand signals.”
When the alphabet (Google 0.10%) (GOOG -0.02%) CEO Sundar Pichai said during the company’s third-quarter earnings call that “realizing the[opportunity]for AI…requires meaningful capital investment.” The company revealed $13 billion in capital spending during the quarter, hinting at “significant increases in capital spending heading into 2025.”
Rounding out the big three cloud providers is Amazon. (AMZN 6.19%). During the third-quarter earnings call, CEO Andy Jassy said Generative was “probably a once-in-a-lifetime type of opportunity that we’re actively pursuing.” said. In light of this, CFO Brian Olsavsky said Amazon will spend about $75 billion in capital spending this year, much of it going to cloud computing and AI infrastructure. The company also announced that it will be announcing “100 new cloud infrastructure and AI capabilities” at AWS re:Invent later this month.
Finally, the meta platform (meta -0.07%). Although the company is not a cloud provider, its social media sites attract 3.29 billion people every day, providing Meta with vast amounts of user data. The company raised its full-year capital spending outlook to about $39 billion, and Chief Financial Officer Susan Lee said, “We expect continued significant capital spending growth in 2025.” She previously said this was “to support AI research and product development efforts.”
why is it important
There is a clear trend toward accelerating capital spending to support the growing demand for AI. Additionally, a large portion of that funding will be spent on the data centers and servers needed for cloud computing, where the majority of the AI software produced resides. So Nvidia will likely receive a significant portion of this spending.
Nvidia has so far remained silent about its biggest customer, but that hasn’t stopped Wall Street from investigating. Analysts at Bloomberg and Barclays Research crunched the numbers and concluded that NVIDIA’s four largest customers (generating a combined 40% of its revenue) are:
Microsoft: 15% Metaplatform: 13% Amazon: 6.2% Alphabet: 5.8%
Each of these companies leaves no doubt about their plans to spend heavily on capital expenditures, especially on infrastructure to support cloud computing and AI aspirations. As a leading provider of data center GPUs, Nvidia will continue to be at the top of the list of beneficiaries of that spending.
mark your calendar
Nvidia is scheduled to announce its next quarterly results on November 20th. The company is trying to keep market expectations in check after five consecutive quarters of triple-digit year-over-year growth, suggesting that revenue growth is promising this time around. It only clocks in at about 79%. Although this is a slowdown, it is still an amazing growth by any stretch of the imagination.
Investors looking to profit in the next three weeks may be disappointed. No one can say for sure how NVIDIA stock will react to this report, even if the company beats expectations.
Investors need only look back to this summer for a reminder of the difficulties associated with short-term forecasting. Since mid-June, NVIDIA stock has lost 27% of its value due to concerns that the next generation of Blackwell AI will be developed. The processor just lags and comes roaring back. For this stock, it shows that volatility is part of the price of admission. That said, comments from large technology customers and their historical spending patterns suggest that NVIDIA will see even stronger growth going forward.
For investors looking for a stock they can hold for years or decades rather than weeks or months, Nvidia is a clear choice to benefit from the AI revolution. And, trading at about 32 times next year’s P/E, it remains an attractive price. I can’t say exactly what the stock price will do between now and November 20th. I can say with a fair amount of confidence that investors will be happy to buy Nvidia stock right away and hold it for 3-5 years, or even more.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Danny Vena has held positions at Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
