The chip behemoth NVIDIA NVDA once again posted a beat-and-raise quarter thanks to the ongoing artificial-intelligence (AI) boom, but its stock was down about 2.5% in Wednesday’s extended session due to the issuance of a less lofty guidance. NVIDIA failed to top expectations with its guidance by the same magnitude as before.
Nvidia’s $37.5 billion revenue forecast for the January quarter topped the consensus view of $37.1 billion. But “whisper” numbers on the buy side were perhaps more in the $39 billion to $40 billion range, as quoted on MarketWatch. For five consecutive quarters leading up to the last two reports, NVIDIA’s revenue guidance surpassed estimates by well over $1 billion each time.
The latest guidance indicates year-over-year growth of about 70%, down from the 265% annual growth recorded during the same period last year. However, the company remains optimistic about its sales outlook, due to skyrocketing demand for its graphics processing units, which play a crucial role in the fast-expanding AI industry.
Slowing Sales Momentum is Natural in a Maturing Industry
NVIDIA posted revenue of $35.08 billion for the quarter ending October 27, marking a remarkable 94% year-over-year increase. Net income soared to $19.31 billion, more than doubling from $9.24 billion a year ago. Adjusted earnings per share came in at 81 cents, topping the Zacks Consensus Estimate of 75 cents, based on expected revenues of $33.21 billion.
The guidance suggests slower growth, with the January 2025 quarter expected to show about 67% growth. For the full fiscal year 2025, NVIDIA’s sales are expected to jump more than 100%, while revenue growth is forecast to slow to 44.75% for the fiscal year ending January 2026.
Earnings per share growth is also likely to exceed 100% in the current fiscal year, but is expected to fall to 37.69% in the next fiscal year. This deceleration is natural, as slowing sales momentum in a maturing industry is a typical phenomenon driven by factors such as market saturation, rising competition, diminishing innovation cycles, and shifts in consumer preferences.
Forget Growth Slowdown: AI Boom in Fine Fettle
We expect the AI boom to remain strong in the next few quarters. Investors are closely watching NVIDIA’s Blackwell ramp. The next-generation AI chip, Blackwell, has demand from companies like OpenAI and others building AI data centers. NVIDIA also plans to address concerns about delays in Blackwell chip shipments.
Shipments are scheduled to begin in the fourth quarter of fiscal 2025 and will continue to ramp into fiscal 2026. However, both the Hopper GPU and Blackwell systems currently face supply constraints, which may persist for several quarters into fiscal 2026.
This news is exciting for investors, but given the nearly 200% increase in Nvidia shares this year, Wall Street may have been expecting a bit more optimism from NVIDIA. Investors should also note that while AI innovations will continue, they tend to be incremental and moderate rather than groundbreaking. Rising competition is the most crucial factor in the space, and margin compression is likely in such scenarios.
What to Expect Ahead from NVIDIA?
NVIDIA’s winning momentum is likely to continue, but its rapid growth may slow down for valid and expected reasons. Another boost in its share price is anticipated next year when more updates on Blackwell’s demand and supply become available.
As for valuation, NVDA shares are not excessively pricey at present. Last year, NVIDIA shares traded at a price-to-earnings (P/E) ratio of 122.17x, but currently, the stock is trading at a P/E of 51.52x for the current fiscal year. The valuation for the next fiscal year is even more attractive, with NVDA shares trading at a forward P/E of 37.6x.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
NVIDIA-Heavy Semiconductor ETFs in Focus
If you’re unnerved about NVIDIA’s sales slowdown, you can opt for the exchange-traded fund (ETF) route to minimize the company-specific concentration risks while remaining bullish on the current AI boom. NVIDIA-heavy ETFs include T-REX 2X Long NVIDIA Daily Target ETF NVDX, Strive U.S. Semiconductor ETF SHOC, VanEck Vectors Semiconductor ETF SMH, Grizzle Growth ETF DARP and Technology Select Sector SPDR Fund XLK.
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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
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VanEck Semiconductor ETF (SMH): ETF Research Reports
Strive U.S. Semiconductor ETF (SHOC): ETF Research Reports