The stock of the GPU manufacturer is continuing to outperform expectations, leading some to question whether the company’s growth has reached its apex.
As the adoption of artificial intelligence (AI) accelerates, there is speculation regarding the sustainability of the current market rally. A buoyant U.S. economy and strong quarterly results from several AI-related enterprises contributed to the Nasdaq Composite reaching a new peak last week. However, these developments have sparked concerns among investors about the potential for an overheated bull market.
Nvidia (NVDA) has positioned itself as a leader in the generative AI sector. The company’s fiscal 2025 third-quarter financial results are anticipated in under three weeks, with Wall Street eagerly awaiting insights into the AI industry’s trajectory. Nvidia’s sales have surged since last year, boosting its stock price by 833% at the time of writing, and placing it slightly less than 5% below the all-time high recorded late last month.
The forthcoming financial report from Nvidia carries significant weight, leaving shareholders to question the likelihood of continued impressive stock performance. Data emerging in the market may offer insights into whether acquiring shares ahead of the November 20 announcement would be prudent for investors.
The success Nvidia has experienced in recent years is largely attributed to the performance of its graphics processing units (GPUs). These units deliver the computational power essential for generative AI and various cloud computing applications. The scale of data and resources involved restricts top-tier AI models to the largest technology firms and cloud providers, many of which are Nvidia’s clients. Recent quarterly reports from these tech giants shed light on the state of AI advancements.
Microsoft, for instance, invested heavily to progress its AI initiatives in its fiscal 2025 first quarter, ending September 30, with capital expenditures of $20 billion largely dedicated to “cloud and AI-related” demands. Microsoft’s CFO, Amy Hood, confirmed expectations for continued capital spending increases. Alphabet’s CEO, Sundar Pichai, emphasized the necessity for meaningful capital investment in AI, revealing $13 billion in expenditures during the third quarter and projecting substantial increases moving into 2025. Similarly, Amazon’s CEO, Andy Jassy, acknowledged the generative AI opportunity as a rare chance, with the company planning approximately $75 billion in capex for cloud computing and AI infrastructure. Meta Platforms also indicated significant capital expenditure growth to bolster its AI research and product development.
The increasing capital investments to support AI demand underscore the potential continued financial gains for Nvidia. Nvidia’s major clients, reportedly responsible for 40% of its sales, include Microsoft, Meta Platforms, Amazon, and Alphabet, all committed to extensive infrastructure spending to realize their cloud computing and AI ambitions.
Nvidia’s next quarterly results, scheduled for November 20, follow five quarters of triple-digit-percentage year-over-year growth. However, Nvidia has attempted to manage market expectations, forecasting a 79% revenue growth this term. Though this indicates a deceleration, it remains a notable growth figure.
Short-term stock price predictions remain uncertain. Investors are reminded of the stock’s volatility, exemplified by a substantial value loss earlier in the year due to concerns over possible delays of new AI processors, only for the stock to rebound. The commitment from major tech clients, paired with historical spending trends, suggests further robust growth prospects for Nvidia.
For those considering long-term investments, Nvidia stands poised to benefit significantly from the AI revolution. Trading at nearly 32 times the projected earnings for next year, the stock remains appealingly valued. While the stock’s short-term movement up to the November 20 report is uncertain, there is a strong indication that long-term investors will likely see favorable returns.
