Nvidia, arguably the world’s most important stock because of its leadership in the Artificial Intelligence revolution, reported strong numbers Wednesday afternoon after the market closed. Earnings and revenues were better than expected. Concerns about gross margin pressure as the company transitions from the Hopper GPU semiconductor platform to the Blackwell GPU platform were misplaced. The company met guidance on margins. Gross margins were a very high 74.5%, with operating margins in excess of 62%.
Those are outstanding numbers. Very high margins and strong revenue growth enable the company to generate significant amounts of free cash flow. Over a two-year period, Nvidia can deliver $200 billion in free cash flow. That is an incredible achievement. The company can deploy that cash flow to continue to stay far ahead of its closest competitor, AMD. Nvidia has about an 80% share of the GPU-accelerated computing market. There are no signs that AMD or any other company is catching up with Nvidia.
Specifically, revenues for the just-ended October quarter were $35.08 billion. The market anticipated a revenue number of $33.16 billion. The company reported earnings per share of 81 cents against expectations of 75 cents. Top line: Nvidia did deliver the goods against very high expectations. Revenues were up almost 100%, year on year. Yes, revenue growth is slowing, but the year-on-year numbers remain very impressive. More importantly, guidance for the current quarter, which ends January 31, 2025, also beat expectations.
What’s happening here?
Well, Nvidia’s numbers are largely a function of the company’s data center business. In that segment, the company’s revenues were $30.8 billion. The market expected data center revenues of $28.82 billion. With these outstanding numbers and future guidance, very positive, where does that leave us for 2025?
The company said demand for both the Hopper platform and the Blackwell platform is “staggering.” It is fair to say that the company is sold out for all of 2025. The outlook remains extremely positive and the earnings valuation of the stock is not excessive. The company should earn around $4.50 per share next year.
The company is growing earnings at more than 50%. An accepted valuation metric compares the price earnings multiple, the stock price divided by expected earnings per share, to the forward projected growth rate. Nvidia’s price-earnings multiple is below its earnings growth rate. That indicates that the stock continues to offer great value for investors. Most companies sell with price-earnings ratios well above their earnings growth rates. Apple grows annual earnings at below 10%. The stock sells with a price-earning multiple above 30.
The multi-year outlook for Nvidia remains outstanding. The company is growing rapidly. There are no signs of a significant competitive threat. Its CUDA software platform is far superior to any competitive software offering. Nvidia spends aggressively on Research and Development.
It plans to introduce a new semiconductor platform named Rubin in 2026. Nvidia invests to stay ahead of any potential competitors. What is perhaps most exciting is that Nvidia’s accelerated GPU semiconductor technology is now being used to understand the fundamental nature of language, physical objects as well as social patterns. Nvidia is enabling us to understand our physical world in minute detail.
Nvidia chips will change our lives profoundly. Nvidia chips are going to change everything about how we live. Obviously, whenever a stock delivers outsized returns, it is vulnerable to profit taking. Nvidia is up 300% this year. The stock is volatile, but with a buy-and-hold strategy investors should be handsomely rewarded over the next 3-5 years.
The writer owns shares in Nvidia.
CLICK HERE TO READ MORE FROM RESTORING AMERICA
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be reached at [email protected].