As Nvidia gets ready to report its fiscal Q4 2024 earnings on Wednesday after the market close, all eyes are on the AI chipmaking giant. Nvidia’s stock has skyrocketed over 500% in the past year, propelling the company to become the world’s 3rd most valuable public company at around $1.8 trillion market cap. The big question is – can Nvidia continue to deliver the jaw-dropping results that have fueled this meteoric rise?
Wall Street certainly thinks so. Analysts are projecting Nvidia to report revenue of $20.6 billion for Q4, a staggering 240% increase from the same quarter a year ago. Earnings per share are expected to surge over 500% to $4.64. Driving the outrageous growth is booming demand for Nvidia’s GPUs that power AI systems like ChatGPT. The company’s data center segment, which houses its AI chips, is forecast to nearly quadruple revenue year-over-year to $17 billion.
“Nvidia is at the center of the AI revolution. Their chips are in extremely high demand from major cloud providers and AI developers to run the advanced AI models that are redefining entire industries,” said Dan Ives, analyst at Wedbush Securities. “The big question is around the sustainability of this explosive growth. Can Nvidia continue delivering these kinds of blowout numbers quarter after quarter?”
AI Craze Fuels Nvidia Rally
There’s no denying Nvidia is benefiting enormously from the current mania around artificial intelligence. With AI rapidly advancing thanks to models like GPT-3, tech giants have been engaged in an AI arms race. Companies like Microsoft, Amazon, Alphabet and Meta have been snapping up Nvidia chips for their cloud AI offerings, supercharging Nvidia’s data center business.
Nvidia’s A100 and new H100 GPUs are tailor-made for large AI models, providing the massive parallel processing power needed to efficiently train systems on huge datasets. Top cloud providers use Nvidia’s hardware to offer AI services to their enterprise customers.
As AI goes mainstream with chatbots, image generators and other applications, the demand has spread beyond just the tech giants. Smaller companies, startups and researchers have all jumped on the AI bandwagon and are now Nvidia customers too. All this has allowed Nvidia to rapidly ramp both revenue and margins.
“Nvidia chips are the gold standard for AI computing right now,” said Susquehanna analyst Christopher Rolland. “The growth trajectory of AI coupled with Nvidia having limited competition in this segment has created a perfect storm driving the company’s results higher.”
Outlook and Guidance Key
While Nvidia is expected to easily beat Q4 estimates, beating on the top and bottom lines may not be enough to keep the rally going. Investors will be looking for any indications of slowing momentum in the AI business. Comments from CEO Jensen Huang on the Q1 guidance and outlook for fiscal 2025 will be crucial.
Given Nvidia’s massive run-up in valuation, anything short of continued exponential growth could disappoint investors. The bar is set extremely high. If Nvidia indicates the Q4 numbers are not sustainable or that demand may take a pause, the stock could get hammered.
“A lot of growth in AI demand is now baked into Nvidia’s valuation and expectations,” said Bernstein analyst Thomas Batsian. What the market wants to see is Nvidia’s projections for AI revenue staying on this skyward trajectory for the foreseeable future.
Nvidia is estimated to have over 80% market share in GPUs for AI systems. But competition is coming, with AMD, Intel, Google and Amazon all working on custom AI chips. While it will take time for competitors to gain ground, Nvidia may not be able to sustain 200-300% AI growth indefinitely.
Some analysts argue Nvidia’s story continues to be underappreciated and see a path for the stock to hit $1,500 or more in the next 12-18 months. Others believe the optimism has reached fever pitch and Nvidia could be due for a reality check. Nvidia’s earnings on Wednesday will provide the next major data point in this heated debate.
Does Nvidia have another mega-beat up its sleeve? Or will the results and guidance start to temper lofty expectations? Investors will find out shortly in Nvidia’s Q4 report and the market’s reaction is sure to be dramatic either way. The stakes have never been higher for the AI leader as it jockeys to become the first $2 trillion company.
