Nvidia Witnesses Persisting Artificial Intelligence Progression. Could This Mark an Opportune Time to Acquire the Shares?
Nvidia (NVDA) once again proved its dominance in the artificial intelligence (AI) sector, posting remarkable revenue growth in Q3 of fiscal 2025 (October 27, 2024 end). Despite its enormous size, the company managed to generate more profits this quarter than its revenue from the same period last year. This is an unusual feat for large corporations.
The stock price might not have skyrocketed with this latest news, but it's still almost tripled since the year began. After another impressive quarter, let's delve deeper into Nvidia's recent financials to see if its upward trend continues.
Rapid Revenue Expansion
Although Nvidia's revenue growth rate slowed down from the unprecedented heights it reached earlier this year, it still recorded a 94% revenue increase in Q3 to reach $35.1 billion. The company saw growth of 262% in Q1 and 122% in Q2. Adjusted earnings per share (EPS) doubled to $0.81. These figures surpassed analyst expectations of $0.75 in EPS and $33.2 billion in revenue.
Its data center business was the star performer again, with revenue rising 112% year-over-year to $30.8 billion. The growth was fueled by the demand for its Hopper graphics processing unit (GPU) computing platform, particularly the H200 Hopper chip. During the quarter, the company shipped 13,000 samples of its next-generation Blackwell GPU architecture chips. The company mentioned a surge in inference revenue and claimed to have the largest inference platform.
Cloud service providers accounted for half of Nvidia's data center revenue in the quarter. The company said that enterprise AI is the next major wave in AI, with thousands of companies using Nvidia NIM, its suite of accelerated inference microservices, to run large language models (LLMs) on its GPUs. They also said that industrial and robotic AI growth is beginning to accelerate.
Nvidia's other segments also showed growth, although they now trail behind its data center business. Gaming revenue rose 15% to $3.3 billion, while professional visualization increased 17% to $486 million, and automotive and robotics revenue surged 72% to $449 million. The company continues to generate significant cash flow, with an operating cash flow of $17.6 billion and free cash flow of $16.2 billion. Nvidia ended the quarter with net cash and marketable securities of $38.5 billion and $8.5 billion in debt.
Looking ahead, Nvidia projects Q4 revenue to be around $37.5 billion, which represents approximately 70% year-over-year growth. The growth will continue to be driven by Hopper, as well as the rollout of its new Blackwell GPU architecture. The company stated that demand for Blackwell far exceeds current supply, but Blackwell revenue is expected to surpass its existing expectations by several billion dollars.
The company noted that the last generation of foundation models required around 100,000 Hopper GPUs, while the newest foundation models will start with 100,000 Blackwell GPUs. They see this trend as a sign of where growth is heading, while also highlighting their large installed base, which they plan to leverage for their inference business growth.
Should One Invest in the Stock?
Despite its significant price increase this year, Nvidia's stock remains undervalued. It trades at a forward price-to-earnings (P/E) ratio of over 34 times analyst estimates for the next year, with a price-to-earnings-to-growth (PEG) ratio of 0.85. A PEG ratio below 1 is typically viewed as undervalued, while growth stocks often have multiples well above 1.
Nvidia continues to demonstrate outstanding growth, which could potentially be even more substantial if not for supply limitations. Demand for its GPUs remains unquenchable as companies strive to expand their AI infrastructure.
Importantly, Nvidia is now seeing strong demand beyond cloud computing customers and among enterprise and industrial customers. It is also seeing a surge in inference demand. While cloud computing companies will continue to require more and more computing power as they advance AI models, seeing growth beyond these areas is crucial for Nvidia's future performance, making this a positive development.
Given the continued robust demand for AI infrastructure and its inexpensive valuation, Nvidia remains an attractive investment option.
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Following its impressive Q3 performance, investors might be considering whether to invest in Nvidia's stock. Despite its current price increase, the company's forward price-to-earnings (P/E) ratio is over 34 times analyst estimates for the next year, suggesting it may still be undervalued.
Nvidia's data center business continues to be its main revenue driver, with its Hopper GPU computing platform and next-generation Blackwell GPU architecture chips fueling demand from cloud service providers and companies using Nvidia's GPUs for large language models. This strong demand, coupled with Nvidia's significant cash flow and debt, makes it an attractive investment option with potential for substantial growth.
