The AI chipmaker is scheduled to report results later this month. Can the stock continue its relentless climb?
The adoption of artificial intelligence (AI) is ongoing, but some investors fear the trend is getting a little long in the tooth. Fears about the economy and weakness in AI stocks helped push the Nasdaq Composite into correction territory earlier this month, and with valuations stretched, some believe there could be further declines ahead.
Nvidia (NVDA -0.21%) has become the poster child for the generative AI trend. When the company reports its results later this month, it's not hyperbole to suggest that Wall Street will be sitting on the edge of its seat, hoping to gain insight into the state of AI adoption.
Nvidia's sales have skyrocketed since the start of 2023, driving the stock up 619% (as of this writing), though it's currently more than 22% off its high.
With so much riding on Nvidia's quarterly results, investors are wondering whether the recent stock price decline represents a buying opportunity ahead of the company's highly anticipated financial report. Let's review the available evidence.
Image source: Getty Images.
Anecdotal data is strong
The biggest driver for Nvidia over the past 18 months has been the rapid adoption of generative AI by cloud infrastructure providers best positioned to monetize AI. Nvidia's graphics processing units (GPUs) are the gold standard for these applications.
As a result, cloud infrastructure providers, including Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud, have been upgrading their data centers to provide the computational horsepower needed to run AI. Even Meta Platforms has jumped on the bandwagon, creating one of the leading large language models (LLMs) so it can profit from AI.
Demand for Nvidia's AI-centric processors remains robust among the cloud leaders, and each has highlighted plans for higher capex spending to support their AI aspirations. This bodes well for Nvidia in the current quarter.
Rivals and partners are reporting robust sales
There's further evidence that suggests Nvidia's results will be robust.
Advanced Micro Devices (AMD -1.50%), otherwise known as AMD, is one of Nvidia's biggest rivals in the GPU space. The company reported its second-quarter results late last month, and the strength of its AI-related sales caught many market watchers off guard. While revenue grew 9% year over year and beat expectations, its data center sales surged to a record $2.58 billion, up 115%, driven higher by soaring demand for AI.
Arm Holdings (ARM -1.21%) creates the CPU cores found in many of Nvidia's AI processors, and its results were similarly upbeat. For its fiscal 2025 first quarter (ended June 30), Arm reported its fourth consecutive quarter of record results. The company generated record revenue of $939 million, up 39% year over year, the result of record license revenue driven by "the proliferation of AI."
Super Micro Computer (SMCI -0.23%) supplies server and storage solutions featuring next-generation AI processors from Nvidia and others. For the company's fiscal 2024 fourth quarter (ended June 30), revenue of $5.3 billion grew 143% year over year and 38% quarter over quarter. Despite its parabolic growth rate, management noted Supermicro continued to be hamstrung by short-term "supply chain bottlenecks."
The thread that runs through these AI players is that demand remained strong in the most recent quarter, driven by the secular tailwind of AI. This suggests Nvidia's sales should be similarly robust.
Stock splits are bullish
There are other reasons to believe Nvidia stock could have additional upside from here. Research by analysts at Bank of America shows that in the 12 months following a stock-split announcement, stock-split stocks gained 25%, on average, compared to just 12% for the S&P 500.
Since Nvidia announced its stock split on May 22, the stock has actually fallen 19% (as of this writing), as fears regarding the state of the economy overshadowed the tailwinds of AI. If history is any indicator, Nvidia still has plenty of double-digit upside potential ahead.
Is the stock a buy before August 28?
For investors looking to make a fast buck, Nvidia is likely not the stock for you. As the recent stock chart shows, Nvidia has been -- and will continue to be -- a volatile stock. While investors who bought last year are likely sitting on triple-digit gains, those who bought last month could be down more than 22%. This helps to illustrate a timeless investing truth: It's best to buy shares in the best companies you can find and hold them for three to five years, as you're less likely to suffer the impact of short-term volatility.
For those wondering whether Nvidia stock will go up or down after its upcoming financial report, your guess is as good as mine. I sent my crystal ball to the shop years ago, but it still hasn't come back. Furthermore, anyone who professes to know what will happen in the days or weeks that follow is being less than truthful.
If I were to hazard a guess -- and that's all it would be -- I suspect Nvidia will report another quarter of record sales. Analysts' consensus estimates are calling for revenue of $28.52 billion,slightly ahead of Nvidia's guidance of $28 billion.However, much of how the stock price reacts in the wake of the report will depend on the company's profitability and Nvidia's forward-looking guidance.
It's important to take a step back and look at the big picture. Nvidia's GPUs are the gold standard for AI processing, and while there's always the threat of competition, no heir apparent has emerged. Most experts believe it's still early innings for generative AI as adoption continues to ramp up. Even the most conservative estimates suggest that generative AI will be a trillion-dollar market,with some forecasts multitudes higher.
Nvidia stock trades at a premium of 38 times earnings (as of this writing), but the company's triple-digit growth, industry-leading position, and long track record show that it's worth every penny.
My advice to you is this: If you believe -- like I do -- that AI has a long way to go and Nvidia will maintain its dominance in the market, then buy Nvidia stock and hold on for dear life.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Super Micro Computer. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Bank of America, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
