Up 3X This Year, Will AI Boom Drive Nvidia Stock Higher After Q3 Earnings?

Nvidia (NASDAQ: NVDA) Q3FY24 results are expected to be published on November 21. We expect another upbeat quarter for the company, as technology companies and developers scramble to deploy generic AI in their applications, leading to a windfall for Nvidia, whose high-end graphics processing chips Remains the product of choice for AI workloads. We expect Nvidia’s revenue to be $15.9 billion, slightly ahead of consensus estimates and about 2.6 times higher than last year’s number. However, that would be slightly lower than the company’s guidance of about $16 billion. We expect earnings to be around $3.21 per share, slightly above the consensus estimate. So what should investors expect as Nvidia reports its Q3 2024 results? Check out our analysis of the Nvidia earnings preview for a closer look at some of the trends impacting the company’s results.

Against the current financial backdrop, NVDA stock has seen an extremely strong gain of 275% from the $130 level in early January 2021 to now around $485, compared to a nearly 20% rise for the S&P 500 over this nearly 3-year period. happened. However, the rise in NVDA stock has not been consistent. The stock had a return of 125% in 2021, -50% in 2022 and 231% in 2023.

In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 15% in 2023 – indicating NVDA underperforms S&P In 2022. In fact, Consistently beating the S&P 500 Individual stocks have had it tough in recent years – in good times and bad; To other giants of the information technology sector, including AAPL, MSFT, and AVGO, and even to megacap stars GOOG, TSLA, and AMZN.

In contrast, the Trefis High Quality Portfolio is a collection of 30 stocks. Outperformed the S&P 500 every year At the same time. Why so? As a group, HQ Portfolio stocks provided better returns with less risk than the benchmark index; Clearly less of a roller-coaster ride in HQ portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and high interest rates, could NVDA face a similar situation in 2022 and S&P’s performance is poor Over the next 12 months – or will we see a huge surge?

The demand for Nvidia’s high-end GPUs such as the A100 and H100 has increased due to demand in the generative AI space. Nvidia’s chips are meaningfully ahead of rivals like AMD and Google
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Tensor Processing Units. Additionally, the company is looking to develop an ecosystem around its AI tools with its own programming languages ​​and software, which is helping the company lock in customers in a better way. This means that customers who buy Nvidia’s GPUs will likely remain customers for a long time. Last quarter, Nvidia’s revenue more than doubled year-over-year to $13.51 billion, exceeding its own guidance of about $11 billion and things are set to pick up even further in Q3 as supply improves. There is a possibility. Nvidia said it has secured large commitments from its suppliers to meet demand and indicated it expects supply to increase each quarter for the next year. Furthermore, the broader semiconductor market appears to be weak with TSMC – Nvidia’s vendor and the world’s largest foundry player – showing that demand for almost all semiconductor product categories except AI chips has weakened. This could potentially give Foundry players more room to increase GPU output. Nvidia is also becoming incredibly profitable due to the AI ​​boom. Net income rose 5-fold to $6.7 billion from a year earlier, while gross margin expanded to 71.2% from 45.9% in the year-ago quarter. The company attributed the margin increase to higher sales of complex data center products as well as bundled software.

While we believe Nvidia’s stock could move slightly higher if it beats earnings, we believe the stock is slightly overvalued at current levels, trading at about 22 times forward sales. Is. This compares to the broader semiconductor industry’s average price-to-sales multiple of about 4.5x. even tesla
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The stock did not trade at P/S multiples of these levels at its peak in 2020-2021. Although Nvidia remains at the top position in the AI ​​chips market, competition in the AI ​​market with traditional chip makers such as Intel may increase.
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And AMD is potentially inventing to take hold in this area given the high stakes. Additionally, big tech players like Google are also doubling down on their use of AI and machine learning-related silicon. We value NVDA at approximately $410 per share, which is approximately 15% below market value. See our analysis nvidia evaluation, Is NVDA stock expensive or cheap? For more information on what drives our value estimate for NVDA stock.

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