This week, it's time for the "NVIDIA moment"!
Wall Street expects NVIDIA's revenue for the third fiscal quarter to reach $33.28 billion, a year-on-year increase of 84%, with data center revenue continuing to set historical records. However, how long can the long-term near-triple-digit rocket growth last? NVIDIA needs a big surprise to please investors, focusing on Blackwell's shipment situation
With the conclusion of the U.S. elections and the Federal Reserve's interest rate decision settled, global markets this week are focusing on NVIDIA, welcoming the highly anticipated "NVIDIA moment."
On Wednesday Beijing time, NVIDIA will announce its third-quarter report for the fiscal year 2025 ending in October. According to data from Visible Alpha:
NVIDIA's revenue is expected to reach $33.28 billion in the third quarter, an 84% increase year-over-year, with net profit expected to grow 88.9% year-over-year to $17.45 billion, and earnings per share expected to jump from 37 cents in the same period last year to 70 cents.
NVIDIA's data center revenue hit a record high of $26.3 billion in the second quarter, and analysts expect its third-quarter revenue to continue to break records, reaching $29.53 billion. In August, NVIDIA CEO Jensen Huang stated, "Global data centers are going all out to modernize the entire computing stack through accelerated computing and generative artificial intelligence."
Investors have high hopes for NVIDIA, but meeting these urgent expectations is no easy task. The current market's most pressing question is how long NVIDIA can sustain its long-term near-triple-digit rocket-like growth as AI demand shows signs of fatigue.
Since the beginning of this year, NVIDIA's stock price has nearly doubled, driven by the AI wave, closing at $141.98 per share on Friday.
Morgan Stanley raised its price target for NVIDIA stock from $150 to $160 last week and maintained an "overweight" rating, citing strong growth in its data center business.
Morgan Stanley analysts stated in their report: “We expect NVIDIA's data center business to become a major growth engine over the next five years, as enthusiasm for generative AI creates a strong environment for AI/machine learning hardware solutions.”
Focus on Blackwell's Shipment Situation
“Currently, a huge surprise is needed to please investors,” noted prominent investor James Foord, “the focus will be on Blackwell chips and their prospects for 2025.”
As NVIDIA's strongest chip in history, the game-changer in the chip industry according to Jensen Huang, the shipment situation of Blackwell is of great concern to the capital markets.
Morgan Stanley believes that current supply constraints may limit NVIDIA's growth potential, but greater growth expectations are likely to emerge later this year when supply issues may ease.
NVIDIA has indicated that it expects the Blackwell chips to bring in billions of dollars in revenue in the first quarter of 2025 (natural year) as production increases, with Morgan Stanley estimating this figure to reach $5-6 billion.
However, based on the quarterly reports already released by chip giants, AI demand may be slowing down. Foord stated that if NVIDIA's report shows similar trends, “I would not be surprised.” Citi expects that NVIDIA's data center sales will increase by approximately $3-4 billion in the first quarter of next year, anticipating that by then NVIDIA will have resolved the Blackwell chip mask issue, but will still be constrained by supply.
The institution also predicts that since NVIDIA's chip shipments are still primarily H200, the gross margin for NVIDIA in the first quarter is expected to be 73%, about 0.3 percentage points lower than market expectations; however, starting from the second quarter, as the adoption rate of Blackwell increases, NVIDIA's chip gross margin will improve, leading to greater "outperformance and upgrades."
Citi has raised its EPS expectations for NVIDIA for fiscal years 2025, 2026, and 2027, and increased its target price from $150 to $170.
How much more upside is there for NVIDIA stock?
However, Foord is pessimistic and believes that now may be the time to abandon NVIDIA. In addition to slowing AI demand, NVIDIA faces competition and some macroeconomic factors (the uncertainty of Trump’s policies), as well as technical factors, which will put pressure on NVIDIA's stock price.
Another noteworthy situation is that in the third quarter, there was a net outflow of funds from NVIDIA insiders and institutional investors. "Did these institutions seize the peak opportunity?" Clearly, Foord believes they did, thus rating NVIDIA stock as a "sell."
Among Wall Street analysts, the pessimistic Foord is definitely an outlier. NVIDIA has 39 "buy" ratings and 3 "hold" ratings, enjoying a consensus strong buy rating on Wall Street. Its 12-month average target price is $163.26, about 15% higher than the current level.
This week's market will be dominated by NVIDIA
NVIDIA's earnings reports have always had a significant impact on the U.S. stock market. According to a report from Bank of America Merrill Lynch over the weekend, NVIDIA has made a significant contribution to the S&P 500 index, contributing 20% over the past year and is expected to contribute nearly 25% to third-quarter EPS growth.
Therefore, NVIDIA's third-quarter report may determine the short-term direction of the market, especially during the market adjustment period after the elections, making NVIDIA's earnings report the focus of market attention. Options market data shows that the market is more sensitive to NVIDIA's earnings report than to next month's non-farm payrolls, CPI, and FOMC interest rate decisions, indicating that NVIDIA's earnings report may have a greater impact on the market than other economic events.
