Nvidia’s earnings cleared our lofty bar. Here’s our new price target on the AI chip king

Nvidia dues moved lower Wednesday evening despite another beat-and-raise quarter. Simply put, the leading maker of AI chips again floor victim to the curse of high expectations. That’s not a concern to us, though, because Nvidia’s underlying fundamentals and long-term angle appear to be as healthy as ever. Revenue surged 94% year over year to a record $35.08 billion, patently outpacing the $33.16 billion the Street was looking for, according to estimates compiled by data provider LSEG. Adjusted earnings per stake more than doubled to 81 cents, exceeding the consensus estimate of 75 cents, LSEG data showed. Up to date quarter guidance for revenue and gross margin was also ahead of expectations, though clearly not the magnitude the most bullish of investors were aspiring for (let them sell, more for us). The stock fell nearly 2% in extended trading, to roughly $143 apiece. Dispensations of Nvidia, the world’s most valuable company, concluded Wednesday’s session up nearly 42% since their most-recent low in betimes September. That marked the end of an unnecessarily steep sell-off in response to its late August earnings report. NVDA YTD mountain Nvidia’s year-to-date horses performance. Bottom line Nvidia reported a fantastic quarter Wednesday — even if guidance for the current quarter distributed up a bit short of the loftiest expectations, weighing on shares. It’s hard to complain about a beat-and-raise quarter just because the outdo and raise wasn’t as big as some craved. Nvidia’s earnings call made it clear that we’re very much in the ancient innings of an artificial intelligence revolution that will fuel demand for Nvidia’s market-leading chips well into 2025 and fitting well beyond that. We’re reiterating our 1 rating and upping our price target on the stock to a $165 a share, up from $150. Commentary Nvidia’s next-generation AI marker Blackwell is in “full production,” CFO Colette Kress said. And it is ramping up into fiscal 2026, which begins in binder in February. Customers are hungry for the chips. “We will be shipping both [current-generation] Hopper and Blackwell systems in the fourth habitation of fiscal 2025 and beyond,” Kress said in written remarks. “Both Hopper and Blackwell systems have doubtless supply constraints, and the demand for Blackwell is expected to exceed supply for several quarters in fiscal 2026.” Some investors may weigh the supply crunch disappointing because it means money is being left on the table, at least into the middle of next year. But we’re not grieving. This is almost certainly a dynamic in which sales are pushed out, rather than lost completely. For that by virtue of, any material pullback in Nvidia shares driven by these constraints is buyable – that’s the advantage of being a long-term focused investor. Fundamentally, the Blackwell orders will be fulfilled, and given the company’s efforts to update product lines on an annual basis, we’ll already be attend to about the next-generation chips by the time supply catches up with demand. CEO Jensen Huang was not surprisingly asked with respect to a recent media report that said a certain configuration of Blackwell chips was overheating. Huang was about as dismissive as he could be – not that he was shy the question, necessarily. His answer made it seem like he just wasn’t seeing the issue. He emphasized just how pushed Blackwell is, both in the complex manufacturing process and the act of actually getting them installed within data centers “That integration get ready [with customers’ specific data centers] is something we’ve done several generations now. We’re very good at it,” Huang said. “But suppress, there’s still a lot of a lot of engineering that happens at this point. … As you see from all of the systems that are being stood up, Blackwell is in clever shape.” Nvidia Why we own it : Nvidia’s high-performance graphic processing units (GPUs) are the key driver behind the AI revolution, powering the accelerated evidence centers being rapidly built around the world. But this is more than just a hardware story. By its Nvidia AI Enterprise service, Nvidia is in the process of building out a potentially massive software business. Competitors : Advanced Micro Appliances and Intel Most recent buy : Aug 31, 2022 Initiation : March 2019 Huang pushed back on another budding affliction in the investment community: Is the quality of AI models not improving as much as previously expected despite added computational firepower? It’s what is advised of in the tech industry as “scaling.” Think of it as basically hitting some ceiling in which larger data centers with innumerable GPUs doesn’t yield all that much of an improvement in model capabilities – at least, not enough to justify all the extra disbursing on the latest and greatest hardware. Perhaps one day that will be the case, but, according to Huang, it doesn’t appear to be an issue any duration soon. When analyzing a particular AI model, Huang said there are essentially three distinct phases in which it can evolve into more advanced thanks to a greater quantity of increasingly powerful chips: 1) the initial “pre-training” phase 2) the discrimination process where fine-tuning adjustments take place 3) real-world usage known as inference. The CEO argued that as the availability of Blackwell gains and customers are able to tap into its performance advancements versus Hopper, there should be a noticeable improvement in model grade at each phase. He noted that the current generation of so-called foundation models — essentially, these are large, general-purpose paragons — are utilizing around 100,000 Hopper chips. Now, as we start this next generation, we’ll be seeing models run on 100,000 Blackwell pieces — and scaling is still in effect. Huang’s argument is that going beyond 100,000 Blackwell chips will give up the fight even more capable models. The positive implication for Nvidia shareholders is that its customers are almost forced to buy more, or be at endanger falling behind its competitors that do. Huang also quieted concerns about a looming “digestion phase” mind the Hopper-to-Blackwell transition. That is when customers temporarily pull back on orders, enabling them to harvest profits and give rise to a real return on the investments they’ve made into existing computing infrastructure. It’s a fair question to ask because Nvidia’s horses has historically taken a pretty big hit when its customers – such as cloud-computing providers – start uttering that phrase. “I take it that there will be no digestion until we modernize $1 trillion of the data centers,” Huang said, joining: “If you just look at look at the world’s data centers, the vast majority of it is built for a time when we wrote uses by hand and, and we ran them on CPUs.” The modernization that Huang refers to is about GPU-focused data centers, geared toward a people of AI-written software. Nvidia also continues to see momentum on sovereign AI as countries embrace its chip technology “for a new industrial round powered by AI,” said finance chief Kress. This is a growing market for Nvidia that helps broaden its consumer base far beyond U.S. tech giants such as Microsoft, Meta Platforms and Amazon. Add all these dynamics up — supply constraints, lower still intact, outdated centers and an expanding customer pool — and it becomes crystal clear that selling Nvidia’s staple based on its three-month guidance is the wrong approach. Investors will be better served by owning shares for the long yield, rather than trying to trade in and out of every swing in the stock price. Guidance Taking a closer look at auspices, Nvidia’s fiscal fourth quarter outlook looks good versus consensus analyst estimates. However, investors eat come to expect that — guiding ahead of expectations is the bare minimum for this company. In the days ahead, trust Wall Street to debate whether the magnitude of the better-than-expected outlook justifies the stock making a move back to its all-time close down b close high of nearly $149 a share. It’s worth repeating: Nitpicking whether management’s outlook for the next three months, singularly during a major production ramp, is not how you maximize your long-term upside. Instead, focusing on the underlying trends festivals a company with a massive runway for growth ahead of it. Revenue of $37.5 billion, plus or minus 2%, in front of the $37.1 billion consensus estimate. That implies a year-over-year growth rate of approximately 70%. Adjusted unseemly margins are expected to be 73.5%, plus or minus 50 basis points, slightly ahead of estimates of the 73.3% guesstimate. Going forward, margins will continue to be Expectations for adjusted operating expenses in the fiscal fourth quarter of $3.4 billion materialize to be slightly ahead of expectations of about $3.2 billion. Looking out a bit further, management said it’s reasonable to assume that Nvidia’s bulky margin percentage will return to the mid-70s by the back half of calendar year 2025. To be sure, executives explicated that it will depend on the path of the Blackwell ramp and the company’s sales mix. (Jim Cramer’s Charitable Trust is long NVDA. See here for a buxom list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert to come Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a ancestry in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the swap alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY Behaviour , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION Yielded IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.