Nvidia’s boffo quarterly earnings report last April set in motion a global fever for generative AI stocks.
As the anniversary of that report — which featured unexpectedly high demand by cloud service providers for Nvidia’s GPU — approaches, has Nvidia stock peaked? Or could the stock rise to a new high on May 22, when the company delivers its fiscal year 2025 first-quarter results?
While possible rival products and high investor expectations could drive down Nvidia’s stock price, I favor the view of optimists such as Morgan Stanley analyst Joseph Moore, who raised to $1,000 his price target on the GPU maker’s stock, according to InvestorPlace.
Here are the reasons for optimism:
- Expectations-beating performance in the last year;
- Hyperscalers’ big GPU investments;
- Nvidia’s strong market position and competitive advantages; and
- The company’s new generative AI inference product.
The biggest obstacle to Nvidia’s stock price topping $1,000 is the company’s recent success. How so? Every quarter in which Nvidia exceeds expectations and raises guidance, investors expect even more of the same for the next quarter.
Analysts expect the company to keep doing that for at least the next year or two. If they are right, Nvidia’s stock will keep rising.
Nvidia’s Expectations-Beating Performance In the Last 4 Quarters
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If a company exceeds Wall Street expectations for sales and earnings in the most recent three months and raises guidance for the future, the stock usually rises. If the company falls short of those results, the stock falls.
Bearing that rule in mind, the 236% pop in Nvidia’s stock price in 2023 and its 79% rise so far in 2024 do not come as a shock. According to Nasdaq, Nvidia — whose fiscal year 2024 ended in January — has surprised on the upside in each of the four most recent quarters:
- Fiscal Year 2024 Q1 earnings per share: 88 cents — 44.3% above investor expectations
- FY 2024 Q2 EPS: $2.50 — 38.9% beat
- FY 2024 Q3 EPS: $3.77 — 24.4% beat
- FY 2024 Q4 EPS: $4.91 — 16.6% beat
These numbers reveal a disturbing trend for Nvidia bulls: The extent to which Nvidia’s earnings exceed investor expectations is steadily dropping. If the recent trend continues — an 8 percentage-point-per-quarter drop in Nvidia’s beat — Nvidia could fall short of what Wall Street expects later this year.
Strong Demand For Nvidia’s GPUs As Margins Rise
Underlying Nvidia’s stock price increase is soaring demand for the company’s GPUs. Demand for Nvidia’s AI-focused chips soared 410% to $18.4 billion in the January 2024-ending quarter. Big customers include:
- Microsoft — is launching Stargate, a $100 billion data-center project, according to TheStreet.com;
- Google
GOOG — is earmarking $50 billion for AI and cloud initiatives, TheStreet.com reports; and - Meta Platforms
FB — plans to buy 350,000 Nvidia H100 GPUs, bringing its total H100 count to 600,000 by the end of 2024, as per TheStreet.com.
Nvidia’s gross margins have also increased. In the fourth quarter of 2024, Nvidia’s gross margins improved 12 percentage points to 76% and are expected to rise to 77% in Nvidia’s first quarter of FY 2025, noted TheStreet.com.
Nvidia’s Sustainable Competitive Advantages
Nvidia’s combination of chips and developer software constitute barriers to entry which are difficult for rivals to surmount. Over the last 15 years, Nvidia’s share of the AI chip industry has reached somewhere between 80% and 95%, as I wrote in my February 2024 Forbes article.
As I said then, signs of Nvidia’s market power include:
- Customers are willing to pay a significant price premium and to wait for over a year to obtain Nvidia’s chips.
- Nvidia chips are expensive; however, Nvidia says they enable companies to save time training their large language models — which more than offsets the price premium.
- Developers build on Nvidia first. Rivals who copy Nvidia hardware are always racing to catch up.
Here are Nvidia’s most important sources of competitive advantage:
- Launching and improving CUDA. In 2006, Nvidia announced CUDA — software for programming GPUs for other fields such as physics or chemical simulation. In 2012, researchers used the chips to identify a cat with precision, according to The New York Times
NYT . - Hiring an AI team. Nvidia hired a team to train large language models — gaining early insights into what AI practitioners wanted. Using that market intelligence, Nvidia built libraries — to perform tasks common to AI development — thus saving the developers’ time, the Times noted.
- Building faster chips every few years and expanding to complete computers. Nvidia consistently delivered faster chips every few years. In 2017, it began tailoring GPUs to handle specific AI calculations, sold chips or circuit boards for other companies, and provided complete computers aimed at faster AI processing, wrote the Times.
Nvidia’s New Blackwell GPU Raises The Bar
To be sure, rivals such as AMD, Intel, and Google are announcing efforts aimed at winning market share from Nvidia, according to InvestorPlace.
While Nvidia’s competitive advantages are formidable, the company has been considered vulnerable in the market for chips that perform inferencing — enabling AI chatbots to respond to user prompts, according to the Wall Street Journal.
Last month, Nvidia announced Blackwell GPU, a new chip architecture for inferencing. These so-called B100 chips work more than two times faster than the company’s current offerings and Nvidia expects to charge 40% more — between $30,000 to $40,000 per unit — than it does for the H100, according to TheStreet.com.
Analysts reacted positively to the B100 news. The UBS analyst Tim Arcuri said Nvidia’s new chips, “will reassert its undisputed technical lead in performance,” while the Bank of America
High Fiscal Year Q1 2025 Performance Expectations
Nvidia stock has lost about 8% of its value since peaking in late March.
When Nvidia reports fiscal first quarter 2025 earnings the GPU designer’s stock price will soar or plunge depending on whether its results and forecast are better than consensus estimates.
Here are the key numbers investors are looking for from Nvidia, according to TheStreet.com:
- FY 2025 Q1 net sales forecast: $24.22 billion — 237% more than the year before, according to Yahoo! Finance
- FY 2025 Q1 gross margin forecast: 77.03% — 13 percentage points more than the year before, Yahoo! Finance notes.
- FY 2025 Q1 adjusted earnings per share forecast: $5.50 — 405% higher than the year before, according to CNBC.
In February, Nvidia guided investors to expect 300% revenue growth to $24 billion in Q1 2025 — $2.4 billion more than the analysts’ consensus, I wrote in February.
Will Nvidia raise its Q2 2025 revenue growth guidance above 300%? Analysts have lower expectations for Nvidia’s FY 2025 revenue growth and gross margins. They forecast Nvidia revenue will grow 82% to $11 billion while gross margins will “stabilize at 75.83%,” according to TheStreet.com.
What Analysts Expect From Nvidia’s Stock Price
Has Nvidia stock passed its peak? The average price target of 41 analysts suggests 13.7% upside with a 12-month price target of $989, according to TipRanks.
Many analysts expect Nvidia stock to rise:
- UBS’ Nvidia price target: $1,100 per share according to the analyst Timothy Arcuri, who said following the company’s Blackwell launch, "We believe Nvidia sits on the cusp of an entirely new wave of demand from global enterprises and sovereigns — with each sovereign potentially as big as a large U.S. cloud customer,” noted Investor’s Business Daily
- Truist Nvidia price target: $1,177 noted the analyst William Stein, who sees “stronger demand in 2024 and 2025,” reported IBD
IBD . - HSBC
HBA Nvidia price target: $1,050, and - Bank of America Nvidia price target: $1,100, IBD wrote.
Not all analysts are bullish. “Although NVDA (Neutral-rated) should deliver a spectacular 2024 (and perhaps into 2025), we continue to believe recent trends set up a significant cyclical downturn by 2026,” D.A. Davidson analysts said in the note Tuesday featured in a CNBC report.
“A combination of shrinking models, more steady growth in demand, maturing hyperscaler investments, and increased reliance by their largest customers on their own chips do not bode well for NVDA’s out years,” CNBC noted.
