The Nvidia (NASDAQ:NVDA) share price ended Wednesday (19 November) up 2.8% in anticipation of third-quarter results. And it’s added another 5% in pre-market trading by the time of writing, after sales of Blackwell chips went “off the charts“.
That’s in the words of CEO Jensen Huang, who added that “cloud GPUs are sold out“.
Huang also said: “We’ve entered the virtuous cycle of AI. The AI ecosystem is scaling fast — with more new foundation model makers, more AI startups, across more industries, and in more countries. AI is going everywhere, doing everything, all at once.”
Beating expectations
Earning beat estimates once again. And Nvidia does seem to be adept at managing expectations. Every quarter, management always seems to hint at something good — but not quite as good as it turns out.
This time, we saw quarterly revenue of $57.01bn with earnings per share (EPS) at $1.30. That’s ahead of the $55.2bn and $1.26, respectively, that analysts were predicting.
And it’s 62% ahead on revenue over the same quarter a year ago, with EPS up 60%. In the past 12 months the Nvidia share price has risen 27%. So the shares are not outstripping profits. It’s quite the opposite — in the past year, earnings have stormed ahead of stock rises.
Can it keep going?
US Fool analyst Seth Jayson recently said: “Nvidia’s incredible hockey stick growth is going to start bending toward an S-curve. That’s inevitable … How quickly the top of the curve loses its pitch out will determine the next few years’ returns.”
He’s right. Demand can’t keep growing at this pace forever, or we’d eventually end up with more Nvidia chips than there are silicon atoms to make them from. But right now, it does look like we’re still in the straight line phase of growth.
Still good value?
I’ll avoid the temptation to use the phrase ‘cheap as chips’ as it wouldn’t quite capture the scale of it. A Blackwell processor currently costs around $30,000, compared to under $200 for an Nvidia share.
Suppose someone just woke me from a 10-year sleep and I had no idea of how AI was going. What if they showed me Nvidia’s forward price-to-earnings (P/E) ratio of 42, dropping to 23 by 2028 forecasts? And they just told me it’s a tech stock in a new and growing segment?
I expect I’d see it as potentially tempting value. I’ve seen many tech stocks command far higher early short-term valuations and go on to much greater things.
What to do?
On the other hand, those who have been awake will know people are talking about AI in the shops, in the pubs, on building sites… and that’s when I really start to think a bubble could be about to burst.
So I’m approaching AI like I did the dotcom bubble. I’ll keep away and see how things shake out in the next year or two. But for those who see value in the current Nvidia share price — and are comfortable with volatility risk — it’s got to be worth considering.
