Nvidia (NASDAQ:NVDA) delivered another classic ‘beat-and-raise’ performance in its latest earnings report, yet the stock took a nearly 6% hit during Thursday’s trading session, leaving investors less than thrilled.
In its fiscal second-quarter (July) report, Nvidia posted record revenues of $30.04 billion, marking a 122.4% year-over-year increase and beating the Street’s forecast by $1.31 billion. Data Center revenue also hit a quarterly record of $26.3 billion (Street was looking for $25.08 billion), reflecting a 16% increase from Q1 and a 154% jump compared to the same period last year. On the earnings front, Nvidia delivered as well, with adjusted EPS of $0.68 beating estimates by $0.04. Looking ahead, the company projects FQ3 revenue of $32.5 billion (plus or minus 2%), which is also ahead of the analysts’ forecast of $31.75 billion.
So, why the lukewarm reaction from investors? It seems Nvidia may have set the bar so high that maintaining its meteoric rise could prove challenging. For instance, while the FQ3 revenue forecast suggests an impressive 80% improvement year-over-year, it also indicates a slowdown compared to previous quarters. Additionally, full-year gross margins are projected to be in the mid-70s range, falling short of the Street’s expectation of 76.4%. This is attributed to factors like inventory provisions for the lower-yielding Blackwell and a higher mix of new Data Center products.
Moreover, Nvidia mentioned a ‘change’ in the Blackwell mask, a move that might be contributing to the challenges in maintaining gross profit margins.
Truist analyst William Stein, who ranks among the top analysts on Wall Street, believes this adjustment “appears to be contributing to a near-term hit to GPM and perhaps it prevents revenue growth from being even stronger than it is.”
However, Stein advises investors not to get too caught up in the short-term noise.
“Investors should look through this fog and recognize that NVDA beat revenue & EPS expectations for the quarter, and in the outlook. Further, results & commentary reinforce that NVDA’s leadership in AI is strong and persistent,” the analyst opined.
As a result, Stein reiterates a Buy rating on NVDA shares, while raising his price target from $145 to $148, suggesting the stock could see a further upside of ~21% over the next year. (To watch Stein’s track record, click here)
That target sits just below the Street’s average of $150, which implies potential gains of 27.5% from current levels. On the ratings front, with 33 Buys vs. 3 Holds, the analyst consensus rates the stock a Strong Buy. (See Nvidia stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
