NVIDIA Corporation NVDA just delivered a remarkable second quarter for fiscal 2025, with revenues surging to $30 billion — a 15% increase from the previous quarter and an astonishing 122% year-over-year growth. The company smashed its own guidance of $28 billion, driven by its data center segment, which contributed $26.3 billion to the total revenues.
NVIDIA’s data center segment alone saw a 16% sequential rise and staggering 154% growth compared to the same period last year, propelled by the soaring demand for its Hopper graphic processing unit (GPU) computing and networking platforms.
Image Source: NVIDIA Corporation
The AI Wave Fuels NVIDIA’s Growth
NVIDIA’s dominance in the data center market is far from accidental. The company has capitalized on the explosive demand for artificial intelligence (AI) technologies. Its Hopper architecture has already gained significant traction, and the upcoming Blackwell platform is expected to further boost revenues. Customers are rushing to adopt Hopper GPUs while eagerly awaiting Blackwell, indicating strong future demand.
Generative AI, in particular, has been a game-changer. The rise of tools like OpenAI’s ChatGPT has highlighted the immense value of AI in data processing, pushing enterprises to invest heavily in this technology.
According to a report by Fortune Business Insights, the global generative AI market is projected to reach nearly $1 trillion by 2032, with a compound annual growth rate (CAGR) of 39.6% from 2024 to 2032. NVIDIA, with its cutting-edge chips, is well-positioned to ride this wave. The company anticipates third-quarter fiscal 2025 revenues to hit $32.5 billion, driven by the growing AI investments in data centers.
NVIDIA Blackwell GPU: A Revolution in the Making?
NVIDIA’s upcoming Blackwell GPU platform promises to be a game-changer across various industries. Set to begin production ramp-up in the fourth quarter of fiscal 2025, Blackwell combines GPU, central processing unit, data processing units, NVLink and networking chips, all powered by NVIDIA’s Compute Unified Device Architecture software.
This platform is expected to revolutionize AI capabilities, positioning NVIDIA at the forefront of innovation. The company expects to rake in billions from Blackwell by the end of fiscal 2025, further solidifying its competitive edge in the AI market.
Near-Term Hurdles: A Bumpy Road Ahead for NVIDIA?
Despite the excitement surrounding Blackwell, NVIDIA faces potential challenges that could impact its stock in the near term. During its second-quarter earnings conference call, NVIDIA revealed that it is expecting to start ramping up the production of Blackwell in the fourth quarter of fiscal 2025 and continue through fiscal 2026. However, it had earlier stated that the ramp-up of Blackwell production would begin in 2024. The latest update signals that the production ramp-up could now start by the end of January 2025.
Earlier in August 2024, The Information had first reported that NVIDIA could encounter delays in delivering Blackwell chips. According to the report, these delays are due to design flaws and could set back delivery by three months or more, affecting major customers like Microsoft, Amazon, Alphabet and Meta Platforms. Such delays could push potential customers toward competitors like Advanced Micro Devices, Inc. AMD, further denting NVIDIA’s near-term outlook.
Adding to the concerns, NVIDIA reported a sequential decline in its second-quarter non-GAAP net profit margin after eight consecutive quarters of growth. The margin, while up 6.5% year over year, contracted by 2.1% from the previous quarter, raising questions about the company’s ability to sustain its profitability.
Is NVIDIA Stock Overvalued?
NVIDIA’s stock has been on a surge this year, up 141.1% year to date, outperforming both the Zacks Semiconductor – General industry and key competitors like Advanced Micro Devices, Micron Technology MU and Marvell Technology MRVL.
YTD Price Return Performance
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However, this impressive performance has driven the stock’s valuation to lofty heights. NVIDIA’s shares currently trade at a forward 12-month price-to-sales (P/S) multiple of 19.81X, significantly higher than the industry average of 16.58X and well above its peers. By comparison, Advanced Micro Devices, Micron and Marvell trade at multiples of 7.99X, 4.27X and 10.08X, respectively.
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Final Verdict: Avoid Buying NVDA Stock for Now
While NVIDIA remains a powerhouse in the semiconductor industry with a compelling long-term growth story, current market conditions suggest caution. This Zacks Rank #3 (Hold) company’s high valuation, coupled with potential delays in product rollouts, makes it less attractive for new investors at this time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For those already holding the stock, it’s wise to stay put, as NVIDIA’s fundamental strengths and growth prospects are still intact. However, new investors might want to wait for a more favorable entry point, perhaps after a market dip, to avoid overpaying for future growth.
In conclusion, NVIDIA is still a dominant player, but the current landscape calls for a measured approach. It’s a stock to hold but not necessarily to buy at this moment.
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