Should You Buy NVIDIA Shares? Assessing Potential After Record Earnings in Q3

November 22, 2023

NVIDIA Corporation (NASDAQ: NVDA)’s recent Q3 earnings report presents a compelling case for potential investors.

With a record-breaking revenue of US$18 billion, significantly surpassing the market consensus of US$16.2 billion, NVIDIA demonstrates robust financial health and market dominance.

This surge, a notable increase from $5.9 billion a year earlier, indicates the company’s substantial growth and potential for future expansion.

Market reaction: Is it too late to invest in NVIDIA?

Despite these strong results, NVIDIA’s shares experienced a 1.7% dip in after-hours trading, attributed to the market’s high expectations and looming concerns about future momentum.

The pullback could also be a profit-taking by investors who want to cash in some of their winnings after shares have gone up by about 240% year-to-date, significantly outperforming the S&P 500.

For potential investors, this suggests a need for cautious optimism and a balanced perspective on short-term fluctuations versus long-term growth prospects.

Key highlights from earnings:

Data-centre dominance is key growth driver: NVIDIA’s data-center business, which saw a 279% year-over-year increase in revenue to $14.5 billion, significantly contributes to the company’s success. This surge, driven by high demand in AI and model training, underscores NVIDIA’s leading position in these advanced technology sectors.

Diverse revenue stream: NVIDIA’s gaming revenue exceeded expectations with $2.9 billion, while its professional visualization and automotive sectors also showed promising figures, with the former surpassing predictions.

Strong earnings growth: In Q3, NVIDIA reported a net income of $9.2 billion, equating to $3.71 per share, a significant increase from the previous year’s $680 million, or 27 cents per share. On an adjusted basis, the company’s earnings were $4.02 per share, rising from 58 cents per share a year earlier and surpassing the market expectations of $3.37 per share.

Future Outlook: Ambitious Revenue Projections

Looking forward, NVIDIA forecasts an ambitious revenue target of around $20 billion for the current quarter, surpassing the general consensus and aligning with more optimistic analyst expectations. Such forecasts suggest confidence in the company’s continued growth trajectory and market relevance.

CEO Jensen Huang’s confidence in the data center’s growth through 2025, alongside the company’s diversifying market presence, offers a reassuring long-term outlook. This suggests NVIDIA’s ability to maintain its growth momentum and adapt to evolving market demands.

Navigating Challenges: The China Factor

Potential investors should consider the near-term challenges NVIDIA faces, especially the U.S. export restrictions to China. With 20-25% of its data-center revenue previously coming from affected areas, there is an anticipated significant decline in sales. However, the company’s optimistic view of compensating for this loss with growth in other regions can be a sign of resilience.

Seize the AI growth wave with NVIDIA

NVIDIA’s stellar Q3 earnings, coupled with its forward-looking projections and solid market standing, position it as a compelling investment opportunity.

While it is crucial for potential investors to carefully consider the near-term hurdles and market sensitivities, NVIDIA’s proven capability to successfully navigate these challenges enhances its appeal.

The company’s consistent performance across diverse sectors, especially in the rapidly expanding field of AI, underscores its potential for sustained long-term growth.

For long-term investors, the current dip in share prices presents a strategic opportunity to capitalise on NVIDIA’s trajectory in the AI revolution.

However, investors should also be cautious of its downside risk and consider NVIDIA’s role within an investor’s overall portfolio, balancing the inherent risks with the diversified strategy to optimise long-term returns.

Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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