TLDR:
- Nvidia’s stock poised for strong Q4 performance after Q3 dip
- AI spending driving increased GPU demand from major tech companies
- Nvidia’s valuation still attractive despite huge 2024 gains
- New “Rubin” chip could boost long-term earnings potential
- Gross margins expected to bottom out and improve in coming months
Nvidia, the powerhouse behind artificial intelligence chips, is riding a wave of optimism as it enters the final quarter of 2024.
Despite a slight dip in the third quarter, analysts and investors are bullish on the company’s prospects, driven by strong demand for AI technologies and Nvidia’s continued innovation in the semiconductor space.
The company’s stock, which has already seen a remarkable 150% increase in 2024, is expected to lead the pack once again as the year comes to a close. Historical trends support this optimism, with the semiconductor sector traditionally performing well in the fourth quarter.
The VanEck Semiconductor ETF, for instance, has averaged a 9.4% gain in Q4 over the past 14 years, compared to just 2.6% in Q3.
Nvidia’s success is closely tied to the rapidly expanding AI industry. Major tech players like OpenAI, Microsoft, Google, and Meta are accelerating the release of more sophisticated AI products, which in turn drives up the demand for Nvidia’s graphics processing units (GPUs). This increased usage is expected to catalyze GPU consumption and bolster Nvidia’s bottom line.
Despite its impressive run, Nvidia’s stock still presents an attractive valuation for investors. It remains one of the most affordable options in its peer group when considering its price-to-earnings-to-growth ratio, trading at just 1x conservative 2025 estimates. This suggests there may be room for further growth in the stock price.
Looking ahead, Nvidia has several potential catalysts on the horizon. Investors are eagerly anticipating more information about the company’s new “Rubin” chip, slated for release in 2026. CEO Jensen Huang is expected to provide updates on this innovation at the company’s GTC show in March 2025.
These developments could push Nvidia’s earnings per share power to $5.00 or higher in the long term.
The company’s gross margins, which saw a slight dip in the previous quarter, are projected to bottom out and begin improving within the next six months. This turnaround in profitability metrics could further boost investor confidence in Nvidia’s financial health.
Nvidia’s recent market performance has been nothing short of impressive. The company briefly claimed the title of world’s second-largest company by market capitalization, surpassing Microsoft with a valuation of $3.19 trillion.
This represents a tenfold increase in Nvidia’s market value over the past two years, highlighting the explosive growth in the AI sector.
The demand for Nvidia’s AI products remains “insane,” according to CEO Jensen Huang. This sentiment is echoed by industry trends, with companies like Super Micro Computer reporting strong sales for liquid cooling products used in conjunction with Nvidia’s GPUs.
Analysts are projecting continued growth in Nvidia’s financials. For the current fiscal quarter, the company is expected to report adjusted profits of $21.9 billion, representing an 80% year-over-year increase in earnings before interest, taxes, depreciation, and amortization (EBITDA). This figure marks a staggering 1,000% jump from the comparable period in 2022.
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