Chipmaker and software company NVIDIA reported its third quarter results on November 17, after the closing bell. The NVIDIA earnings event was one of the most awaited on Reddit forums, since the company is considered a key player in important sub-segments of tech, including gaming and artificial intelligence. NVIDIA topped revenue and EPS expectations, as usual.
In the morning of November 18, NVIDIA stock (NVDA) - Get NVIDIA Corporation Report climbed as high as 12%, boosted by earnings euphoria and the stock’s popularity on the main discussion boards. In fact, NVDA was the most discussed stock on Reddit on November 18 (see below).
Today, we take a closer look at NVDA; the post-earnings excitement; and why the stock, now up a solid 25% in November alone and around +125% YTD, continues to trade like a meme.
(Read more from Wall Street Memes: 3 Fun Facts About Tesla Stock’s Q4 Boom)
Strong Q3 results and growth pace
Despite optimistic estimates by Wall Street, NVIDIA still delivered an easy all-around beat on EPS, by $0.06, and on revenues, by $289 million. All business segments saw robust revenue growth, especially data center – which has been the main revenue growth driver in the past quarters. Nvidia also posted a significant guidance beat on gross margins of 65.2%. Not many companies outside pure software vendors can boast gross margins above 60%.
Jensen Huang, founder and CEO of NVIDIA, also mentioned AI demand as a highlight of the quarter:
“Demand for NVIDIA AI is surging, driven by hyperscale and cloud scale-out, and broadening adoption by more than 25,000 companies. NVIDIA RTX has reinvented computer graphics with ray tracing and AI, and is the ideal upgrade for the large, growing market of gamers and creators, as well as designers and professionals building home workstations.
NVIDIA’s outlook for Q4 is for revenues to reach $7.4 billion and gross margins to land between 65.3% and 67.0%. The gaming cycle refresh and AI demand could be some of the catalysts allowing the company to achieve its guidance goals.
Invest or trade?
NVIDIA’s latest earnings report proved that business fundamentals remain as strong as ever. Substantial guidance and consensus beat coupled with upbeat outlook on growth and gross margins suggest that this remains a potentially good investment for the long term, especially if one considers largely untapped opportunities in areas like the metaverse.
The counterpoint is valuation, and whether the market might be pricing NVIDIA’s growth at too high a multiple. A current P/E ratio of 74x is the second highest amongst the 20 largest companies by market cap, only trailing Tesla (TSLA). One can’t help but wonder if NVDA’s meme-like, parabolic climb in 2020, 2021 and especially the current quarter might set the stock up for a pullback in the foreseeable future.
Those a bit less concerned about NVIDIA’s valuations may be compelled by the company’s post-earnings euphoria that may continue to entice momentum traders and support share price for now.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)