NVIDIA Corporation (NASDAQ:) continues to ride the artificial intelligence wave, posting exceptional financial results and maintaining its leadership position in the GPU and AI chip markets. Despite short-term headwinds, investors and analysts remain largely bullish on NVIDIA’s long-term prospects as the company ramps up production of its next-generation Blackwell architecture.
Record financial performance
NVIDIA reported impressive fiscal 2025 third quarter revenue of $35.1 billion, a 94% year-over-year increase. This impressive growth was primarily driven by strong demand for the company’s data center products, particularly its Hopper GPU architecture designed for AI and high-performance computing applications.
Heading into the fourth quarter, NVIDIA expects revenue of $37.5 billion, representing a 7% increase from the previous quarter. The outlook was slightly lower than some analysts expected, but still reflects continued strong demand for the company’s products.
Gross margins are expected to face some pressure in the near term, with the outlook for the first half of fiscal 2026 in the low 70% range. However, management expects margins to recover to the mid-70s in the second half of this year as production of the new Blackwell architecture ramps up.
AI boom accelerates growth
Explosive growth in artificial intelligence applications continues to be a key catalyst for NVIDIA’s success. Cloud service providers, consumer internet companies, enterprises, and even sovereign nations are rapidly expanding their AI infrastructure, driving demand for NVIDIA’s high-performance GPUs and specialized AI chips.
NVIDIA’s data center division had an outstanding performance, with third-quarter revenue up 17% sequentially. The company’s Hopper computing platform has seen particularly strong adoption, strengthening NVIDIA’s position as the go-to provider of AI acceleration hardware.
Blackwell: The next frontier
As NVIDIA looks to maintain its technological edge, all eyes are on the company’s next-generation Blackwell GPU architecture. Blackwell plans to begin mass production in Q4 2025 and is expected to significantly improve the performance of AI and high-performance computing workloads.
Some analysts predict that Blackwell could generate billions of dollars in revenue during its initial launch phase. However, the transition to this new architecture may cause disruption in the short term, as customers may delay purchasing current-generation products in anticipation of Blackwell’s release.
Competitive environment and challenges
NVIDIA currently dominates the AI chip market, but the company faces increasing competition from rivals such as Advanced Micro Devices (NASDAQ:) and Intel (NASDAQ:). Additionally, geopolitical tensions and export restrictions create challenges for NVIDIA in the Chinese market and may impact sales of certain high-performance products.
Despite these headwinds, analysts generally believe that NVIDIA’s technological leads and strong ecosystem of software and developer tools will allow it to maintain its market leadership position for the foreseeable future.
Long-term growth potential
The consensus among analysts is that NVIDIA’s long-term growth prospects remain very attractive due to the continued expansion of AI applications across various industries. For fiscal 2026, revenue is expected to be between $186 billion and $225 billion, and earnings per share are expected to be between $4.15 and $5.10.
These forecasts reflect expectations that demand for AI computing power will continue to grow exponentially, and NVIDIA is well-positioned to capitalize on this trend through its cutting-edge hardware and software solutions.
bear case
How might short-term supply constraints affect growth?
NVIDIA faces potential challenges in meeting the surge in demand for its products due to supply chain constraints. The company’s decision to switch from monolithic power Systems (NASDAQ:) joining Infineon (OTC:) Technologies (IFX) as the primary power management integrated circuit (PMIC) vendor may result in a temporary shortage of GB200 NVL server racks in the fourth quarter. This supply bottleneck could limit NVIDIA’s ability to take full advantage of the current AI boom, potentially pushing some of its revenue into future quarters.
Additionally, new Blackwell architecture enhancements may cause some customers to delay purchasing current-generation products, which could temporarily slow sales growth. The combination of these factors could cause NVIDIA’s financial results and stock price to be volatile in the short term.
Is NVIDIA’s valuation too optimistic given its high expectations?
NVIDIA stock experienced a significant rally due to enthusiasm surrounding the AI market opportunity. For this reason, high expectations are already factored into the stock price, and there are concerns that the company’s valuation may be overvalued.
With a price-to-earnings ratio well above the overall market average, NVIDIA’s current valuation leaves little margin for error. Disappointments in financial results, product launches, or market share could lead to a sharp correction in stock prices. Investors should carefully consider whether the company can continue to meet or exceed the high growth expectations built into its current valuation.
blue case
How far can the AI computing market grow?
The potential size of the AI computing market presents a huge opportunity for NVIDIA. As companies across sectors increasingly deploy AI technology for tasks ranging from natural language processing to autonomous systems, the demand for specialized AI hardware is expected to grow exponentially.
Some analysts predict that the global AI chip market could reach hundreds of billions of dollars annually within the next decade. As the current market leader, NVIDIA is well positioned to capture a significant portion of this growth. The company’s end-to-end solutions, including both hardware and software, make it an attractive partner for companies looking to implement AI at scale.
Additionally, emerging applications such as AI-powered robotics in manufacturing and warehousing could open up entirely new markets for NVIDIA’s technology and provide new avenues for long-term growth.
Can NVIDIA maintain its leadership position in AI chips?
NVIDIA’s continued investment in research and development, coupled with its strong ecosystem of software tools and developer support, gives it a significant advantage in maintaining its leadership position in the AI chip market.
The company’s upcoming Blackwell architecture is expected to offer significant performance improvements over current-generation products, potentially widening the gap between NVIDIA and its competitors. This technological advantage, combined with NVIDIA’s established relationships with major cloud providers and enterprises, creates high switching costs for customers and makes it difficult for competitors to gain significant market share.
Additionally, NVIDIA’s CUDA software platform and extensive library of optimized AI algorithms offer a compelling value proposition that goes beyond just hardware performance. This comprehensive approach to AI acceleration could help NVIDIA protect its market position even as competition increases.
SWOT analysis
Strengths
Market leader in AI and GPU technologies Strong brand recognition and customer loyalty Comprehensive ecosystem of hardware and software solutions Robust R&D capabilities
Weakness
Reliance on third-party manufacturers in chip production Impact on cyclical demand in the gaming and cryptocurrency markets Possible over-reliance on the data center segment for growth
opportunity
Expanding AI market across industries New applications in robotics and autonomous systems Potential for new product categories and market segments
threat
Increasing competition from existing and emerging players; geopolitical risks and export restrictions; potential for market saturation or slowing of AI adoption rates, particularly in China;
Analyst target
Goldman Sachs: $165 (November 21, 2024) barclays (LON:): $160 (November 21, 2024) wells fargo (NYSE:): $185 (November 21, 2024)Cantor Fitzgerald: $175 (November 21, 2024)Citi: $175 (November 21, 2024)KeyBanc: $180 (November 19, 2024)Stifel: $180 (November 19, 2024)
This analysis is based on information available through November 27, 2024 and reflects market conditions and analyst opinion on that date.
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