Nvidia (NVDA -2.09%) reported a stellar performance for the third quarter of fiscal 2025 (ended Oct. 27, 2024), with revenue and earnings soaring year over year by 94% and 109%, respectively. The company reported revenue of $35.1 billion, far ahead of its guidance of $32.5 billion -- driven by broad-based strength across businesses. Unsurprisingly, the artificial intelligence (AI)-powered data center segment was the company's major growth catalyst, with revenue rising 112% year over year to $30.8 billion.
Despite the amazing earnings performance, Nvidia's share price dropped slightly after the report's release. Investors were disappointed and seemed to have expected a stronger performance. The increased hype around Nvidia over the past two years made it difficult for the company to surpass market expectations.
However, the market sentiment may soon change for the better. CEO Jensen Huang will deliver the opening keynote at the 2025 CES (Consumer Electronics Show) on Jan. 6. Here, Nvidia is expected to release next-generation graphics processing units (GPUs) such as the RTX 5080 and RTX 5090. With major announcements anticipated in early January 2025, share prices may see an impressive boost in the coming months.
Should you buy Nvidia stock before this upcoming catalyst?
Nvidia is a dominant player in the AI computing infrastructure market
Nvidia has positioned itself as a leading data-center-scale AI infrastructure company. With central processing unit (CPU)-based coding being increasingly replaced by GPU-based machine learning and neural network algorithms, nearly $1 trillion worth of installed base of data center infrastructure needs to be upgraded. Additionally, the increasing adoption of generative AI technologies has given rise to AI factories, a new AI-based industry requiring tens of thousands of GPUs and generating a wide range of digital intelligence. Nvidia expects AI factories to become a multitrillion-dollar industry. All these trends bode well for Nvidia's AI-optimized hardware and software offerings.
Subsequently, Nvidia's Hopper architecture GPUs continue to be in high demand. The H200 GPU, the successor to the widely successful H100 GPU, has seen the fastest product ramp-up in Nvidia's history, driven by widespread adoption from major cloud service providers, including Amazon Web Services, Microsoft Azure, and CoreWeave. H200 sales reached double-digit billions by the end of the third quarter.
Nvidia's next-generation Blackwell architecture systems (full-scale, full-infrastructure, AI data-center scale systems with customizable configurations) are also expected to be a major growth catalyst in 2025. The company has shipped 13,000 GPU samples to customers in the third quarter. With demand for Blackwell far outpacing supply, Nvidia will continue to charge premium pricing for these offerings.
Nvidia has also established itself as the largest inference platform (inference is executing machine learning or AI models in real-time) globally, thanks to its large installed base of AI-optimized GPUs and robust software ecosystem. While previously used for training foundational models, the same hardware is also being transitioned for inferencing with the help of software frameworks, libraries, and algorithms.
Nvidia is seeing enterprise AI and industrial AI tailwinds
Nvidia is seeing robust demand for its cloud-native enterprise AI software suite services since it has become a preferred inferencing platform for enterprises designing, building, and deploying AI agents and copilots. Currently, over 1,000 companies are using Nvidia NIM microservices, a part of the Nvidia Enterprise software suite. With billions of AI-powered agents expected to be deployed in the coming years, enterprise AI will be a major growth opportunity for Nvidia.
Furthermore, Nvidia's Omniverse platform (a set of tools that helps developers design and create real-world simulations) stands to benefit significantly from ongoing advances and the increasing adoption of industrial AI and robotics.
Nvidia reports strong demand for its networking services
Nvidia's networking business is also proliferating, with revenue rising 20% year on year in the third quarter. Strong demand for InfiniBand and Ethernet switches, SmartNICs, and BlueField DPUs from cloud service providers and supercomputing centers to power their AI-optimized GPUs has been a major catalyst for Nvidia.
Where does Nvidia's valuation stand?
Analysts are mostly optimistic about this high-flying AI stock. Among the 67 analysts covering Nvidia stock, the median target price is $175, implying an upside of 26.6% at the time of writing (as of Nov. 29).
Nvidia currently trades at a price-to-earnings (P/E) ratio of 54.4, far lower than its five-year average P/E multiple of 75.8. The company's growth-adjusted P/E ratio, namely the price/earnings-to-growth (PEG) ratio of 0.23, is also quite reasonable.
All this means that Wall Street is still very bullish about the stock and sees significant upside potential. Nvidia is the undisputed leader of the global AI market -- expected to be worth $826.7 billion by 2030 (as per conservative estimates) and enjoys exceptional pricing power compared to the competition.
Considering its strong technological moat, large installed base, widespread adoption of hardware and software, and robust financial growth trajectory, it may make sense for astute investors to pick up at least a small position in the stock -- ahead of its share price catalyst in early January 2025.
