Nvidia Looks Poised To Beat Q3 Earnings

Summary:

• Nvidia Corporation releases its third quarter earnings on Wednesday.
• The consensus EPS figures are close to Nvidia’s recent guidance.
• However, Nvidia’s customers’ AI capital expenditures grew faster in Q3 than Nvidia said its revenue would grow. Meta is guiding for extreme CAPEX growth in Q4, which overlaps Nvidia’s Q3.
• For this reason, I think another beat is likely for NVDA’s third quarter release.
• However, I maintain my hold rating on the stock due to valuation concerns.

Nvidia Corporation (NASDAQ:NVDA) is set to report its fiscal third quarter 2025 earnings on Wednesday, November 20. Analysts are expecting the company to do $33.07 billion in revenue and $0.74 in adjusted earnings per share (EPS). These figures represent sequential growth rates of 10% and 10.44%, respectively, going by the comparable figures from the second quarter release.

If Nvidia simply hits the revenue and earnings figures analysts expect it to hit, then its growth will decelerate from the previous quarter’s growth rate. In the second quarter, the company’s revenue grew 12% sequentially and its earnings grew 20% sequentially. Therefore, the expected third quarter growth rate represents substantial deceleration.

However, there is no simultaneous expectation of deceleration in the CAPEX spending from Nvidia’s largest customers. To the contrary, most of them have guided for increased spending in the fourth quarter, with Meta Platforms (META) having implied that its growth rate in CAPEX will accelerate in the period. Additionally, Nvidia’s supplier Taiwan Semiconductor (TSM) is expecting CAPEX to grow 14.3% in 2025. This represents considerable deceleration as well, as TSMC’s CAPEX actually declined in the TTM period using 2023 as the base period.

When I last covered Nvidia, I rated the stock a “hold” because it was likely to continue growing but was too richly valued. While my take on the stock remains a neutral one, I do expect the company to beat on earnings again this week. Additionally, my estimate of Nvidia’s fair value is now higher than it was when I last wrote about the stock. In this article, I will explore why I think Nvidia will beat on earnings in its Wednesday release and share my updated estimate of the price I’d pay for NVDA stock.

What My ‘Hold’ Rating Means

Since my past coverage of Nvidia attracted some criticism from NVDA shareholders, I should share the meaning of my hold rating. It means that a risk-averse value investor shouldn’t bother with the stock at a greater-than-index weighting at today’s prices. It does not mean that I think the price will go down. NVDA could well go up. However, as a value investor, my investment philosophy does not include principles such as betting on continuously high growth for years and years. Rather, it involves valuing stocks on moderate growth assumptions, if any at all–which is why value investors usually prefer stocks with low valuation multiples (when a stock has a very low multiply it may not need any growth to be worth the investment).

If you, as a growth oriented investor, have a serious information edge in analyzing Nvidia (i.e., being employed at Nvidia or one of its biggest customers) you may well be able to correctly forecast continued high growth at the company for years and years. However, given that Peter Thiel, Chairman of Nvidia customer Palantir (PLTR) has gone on the record as saying that Nvidia’s moat “isn’t that durable,” I feel like non-tech insiders should value this stock on the assumption of decelerating future growth. The publicly known information on Nvidia at this time seems to imply that the company’s competition will ramp up. We’re already seeing signs of that happening, such as Apple (AAPL) opting to train its AI on Google (GOOG) (GOOGL) chips rather than Nvidia ones.

Despite all of the above, I actually think that Nvidia’s near term growth will be higher than what the market expects, and I will share my reasons for thinking that in the paragraphs below.

Customers Still Buying Aggressively

The main reason I think Nvidia will beat on earnings is because its biggest customers are still spending heavily on AI infrastructure. At least one of them has implied that the spending will ramp up dramatically in the fourth quarter. Nvidia has an unusual fiscal quarter: its third quarter runs a month into most companies’ fourth quarters. So, at least part of the spending discussed below will show up in Wednesday’s release.

• In its third quarter earnings call, Google said that its fourth quarter CAPEX was likely to be in line with the third quarter amounts, describing “servers and data center” as the main source of costs. The company also said that NVDA graphics cards would be part of the expenditures.

• Microsoft is guiding for continued CAPEX growth, most of it related to Azure (the segment that provides its clients with access to NVDA-based servers). According to a Morningstar (MORN) report, half of this CAPEX is expected to be server-related.

• Amazon (AMZN) is guiding for $75 billion in CAPEX for 2024, overwhelmingly related to AWS. It has booked $51.6 billion of CAPEX in 2024 so far, leaving $23.4 billion for the fourth quarter. Last quarter’s CAPEX was $21.278 billion, so CAPEX is expected to grow by $2.19 billion sequentially.

• Meta Platforms expects $38 to $40 billion in CAPEX for the year, implying at least $15 billion fourth quarter CAPEX. That $15 billion, if hit, would be 83% sequential growth and 95.6% year-over-year growth.

These four customers collectively make up 40 of NVDA’s revenue. Specifically, according to Bloomberg estimates:

• Microsoft makes up 15%.

• Meta Platforms makes up 13%.

• Amazon and Google each make up 6%, so 12% between the two of them.

Now, the sequential CAPEX growth expected at Amazon, Microsoft, and Google is about in line with Nvidia’s expected revenue growth. But note the figures for Meta Platforms. If that company is to hit its 2024 CAPEX guidance, then its spending will increase 83% sequentially; also, Meta is a larger percentage of Nvidia’s business than Google and Amazon combined. If we assume that the CAPEX growth at three companies apart from Meta will be about 12% and that Meta’s will be 83%, and equally weight all four growth rates, then the weighted average CAPEX growth rate at the four is about 28%. That increases the likelihood of Nvidia beating on revenue. It does not guarantee such an outcome, as about 60% of Nvidia’s business, including the entire gaming segment, is not accounted for here. But it does make it fairly likely: 28% growth in 40% of something produces 11.2% growth in the whole if the rest grows at 0%–that’s almost Nvidia’s entire revenue guidance right there.

Given the information above, I’d expect Nvidia’s fourth third revenue to come in at about $34 billion, and for fourth quarter revenue to come in at least 12% higher than that.

Revisiting my Price Target in Light of The New Information

As mentioned previously, I said in my last Nvidia article that I’d pay $83 for the stock. I still think my reasoning for that estimate was sound. However, I am now expecting slightly higher growth than I expected when I wrote that article, so my price target is a little higher. Given the revenue expectations outlined in the previous section, my full-year revenue remains close to the previous one, at $129B. However, the continued high CAPEX spending at Nvidia’s customers, could result in next year’s growth rate could be a little higher than 70% (the growth rate I estimated last time). Raising the growth rate incrementally to 75% while leaving the longer-term growth rates unchanged produces the following updated EPS estimates:

• 2024: $2.84.

• 2025: $5.14.

• 2026: $6.22.

• 2027: $6.92.

• 2029: $7.2

• 2030: $7.3.

Discounting the cash flows above at 9.59% with a 2% terminal growth rate produces a fair value estimate around $86. This is my new estimate of what I would pay for Nvidia stock. While it is below the current stock price, I still consider the stock a hold today, as the company’s longer-term growth could easily run far ahead of what I expect.

The Bottom Line

The bottom line for Nvidia is that it still has a lot of growth left to do. It is likely to be a year or two before competitors like Google and Advanced Micro Devices (AMD) really scale up their AI chip operations and start bringing the fight to the company. Eventually, the growth story will slow down, but the coming quarter is likely to be another winner.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of TSM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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