Nvidia Pre-earnings Analysis
Nvidia faces a pivotal moment this week as it prepares to release its fourth-quarter earnings report. The AI powerhouse has delivered staggering growth over the past year, with revenues surging by 262%, 122%, and 94% in the first three quarters of 2024, respectively. However, the big question remains: can this explosive momentum continue?
With a towering $3.19 trillion valuation, Nvidia has a lot to prove to investors, especially as it inches closer to Apple’s $3.71 trillion market cap. Yet, when comparing their revenues, a stark contrast emerges: Nvidia is projected to generate approximately $120 billion in 2024, while Apple raked in $391 billion, more than three times as much. This discrepancy raises concerns, as Nvidia is trading at a valuation nearly on par with Apple despite generating only a fraction of its revenue. Where Nvidia stands apart, however, is in its profit margins. The company has consistently posted margins exceeding 50% per quarter over the past year, solidifying its reputation as a cash-printing machine. This efficiency has helped justify its soaring valuation, making the stock appear cheaper with each earnings report.
Currently, Nvidia trades at a price-to-earnings (P/E) ratio of 53x, more than double the typical "healthy" range of 15-25. While high, many argue this valuation is warranted given Nvidia’s ambitious earnings projections and dominant position in the AI-driven semiconductor space. This quarter’s earnings will be a critical test of whether the company can maintain its extraordinary trajectory, or if cracks in the story begin to show. As of now, Nvidia is expected to post Q4 revenues of $38.32 billion, marking a 73% year over year increase, but the level of growth seems to be tapering off when compared to their robust triple digit growth seen last year. Net income is expected to reach $21.08 billion, up 64% from same quarter last year.
The odds of Nvidia beating earnings expectations are pretty high, but the main focus will be on forward guidance and projections. Investors want reassurance that threats from rising competition like DeepSeek aren’t detrimental, and they want to hear more about the highly anticipated Blackwell platform’s production, which is expected to be released later this year.
While all the rules of investing currently suggest that Nvidia is highly overvalued, market optimism can still eclipse the “standard” laws classic investors live by. Nvidia may very well continue trading at a $3T+ valuation as long as excitement around artificial intelligence remains robust, especially with giants like Apple, Microsoft, Google, and Meta expected to spend hundreds of billions on AI development in the coming years.
We are aware that this analysis pointed out both positive and negative aspects of the Nvidia investment right now, but that’s necessary when looking at any business. Nvidia and the market are in a peculiar spot right now, where excitement about technological advancements are echoed, but valuations are questionable.
Option chain analysis:
Nvidia’s option chain that expires on March 21st 2025 currently reflects an implied volatility reading of 75%, which translates to about a (+/-) $20 move from the underlying stock. Whether that’s up or down will depend on the earnings outcome.