Nvidia Q3 Earnings: A Tale Of Blackwell, Jetson, And The Omniverse

Summary:

• Nvidia Corporation’s Q3 earnings surpassed expectations, with revenues up 93.6% y/y and EPS up 103% y/y, driven by strong Datacenter and Gaming segments.
• Blackwell production is in full swing, with demand expected to exceed supply, positioning Nvidia for significant growth in Industrial AI.
• Automotive & Robotics segments showed robust growth, with revenues up 72% y/y, and new initiatives in humanoid robots and autonomous vehicles.
• Despite potential risks from Blackwell’s complexity, rising competition, and China tariffs, Nvidia’s strong performance and future prospects justify maintaining a BUY rating for NVDA.

Investment Thesis

In my last article on Nvidia Corporation (NASDAQ: NASDAQ:NVDA), I analyzed the company’s Q2 earnings report and argued why it is not just the AI revolution that is going to drive the company’s future growth. I initiated coverage on the stock with a BUY rating.

Since my article was published in September 2024, the stock has gained 34.1%, significantly outperforming the S&P 500 (SP500), which gained 7.8% during the same period.

In this article, I analyze the company’s Q3 earnings report and investigate the company’s progress on Blackwell production as well as examine whether the company’s other segments, especially the Automotive & Robotics segment, have maintained their momentum.

A Snapshot of Nvidia’s Q3 Performance

Nvidia had yet another impressive quarter, with both revenues and EPS blowing past street estimates. More specifically, Q3 revenues came in at $35.1 billion, up 93.6% y/y and beating analyst estimates by $1.95 billion. Non-GAAP diluted EPS came in at $0.81, up 103% y/y and beating analyst estimates by $0.06. Datacenter revenues, NVDA’s primary driver, came in at $30.77 billion, up 17% sequentially and up 112% y/y. Gaming revenues also maintained their momentum, coming in at $3.28 billion, up 14% q/q and up 15% y/y.

Q3 gross margins came in at 75%, on a non-GAAP basis, which is at the high-end of the company’s guidance, down 0.7% q/q as the company ramps up the production of Blackwell. The company also generated $17.6 billion in operating cash flows, more than doubling y/y. In the first nine months of the fiscal year, the company has generated operating cash flows to the tune of $47.5 billion, nearly tripling y/y.

Management’s Q4 guidance was also impressive. Q4 revenues are now expected to be around $37.5 billion (+/- 2%) and while this beat street estimates of $37.1 billion, it fell short of the so-called “whisper number” of around $39 to $40 billion, which led to a negative reaction in the stock. Non-GAAP gross margins are expected to be 73.5% (+/- 0.5%). Non-GAAP operating expenses are expected to be approximately $3.4 billion and other income and expenses are projected to be around $400 million. The company expects tax rates in the fourth quarter to be 16.5% (+/- 1%).

NVDA Gears Up for ‘Industrial AI’ As It Ramps Up Blackwell Production

The quarter may have been a blowout one, but investors and analysts were always going to focus on how the Blackwell production is progressing. And the news was positive on this front as the management announced that Blackwell was in full production with 13,000 GPU samples shipped to the company’s customers in the third quarter. The company, while warning that demand for Blackwell is expected to exceed supply for “several quarters” in FY26, also mentioned that it is on track to exceed its prior revenue estimate from Blackwell. It plans to deliver more Blackwell GPUs in Q4 than previously estimated.

While the first part of the commentary was hardly surprising, given that all its major customers, especially the hyperscalers, have mentioned how much they plan to spend on capex during their respective earnings calls, the second part is a positive surprise. This is because, earlier this week, there was a report by The Information, which mentioned that the dispatch of Blackwell GPUs was delayed due to an overheating issue. The fact that the company is projected to ship more Blackwell GPUs, therefore, suggests that the issue was blown out of proportion. Furthermore, when asked about this report, all CEO Jensen Huang mentioned is that “Blackwell production is in full steam.” No reference to the report whatsoever, which further suggests that the reaction was overdone.

When I initiated coverage on NVDA, I mentioned how investors need to pay close attention to the considerable growth seen in Sovereign AI. Management, during the earnings call, reiterated that the growth in Sovereign AI was intact. But the bigger takeaway, from a long-term perspective, was the potential of “Industrial AI,” and the progress that NVDA has already made in this direction. Management, during the earnings call, suggested that the adoption of NVIDIA Omniverse, the platform used for building, training, and operating Industrial AI and robotics is rapidly progressing. For instance, in the quarter gone by, the company announced a partnership with Foxconn to build Taiwan’s fastest AI supercomputer with Blackwell. In addition, Foxconn is using NVIDIA Omniverse to fast-track the production capabilities of three factories, which are used to manufacture GB200 Grace Blackwell Superchips. Finally, the likes of Reliance Industries and Ola Electric in India and Toyota and Yaskawa in Japan are all using Omniverse to “automate workflows and drive more efficient operations.”

CEO Jensen Huang and Co. are known for obtaining a first-mover advantage in whichever areas they set their eyes upon. Based on the management commentary during the earnings call and based on some Q3 highlights, it is clear that they have eyed Industrial AI as their next growth opportunity. They have every reason to as well. According to Market Research Future, the market for Industrial AI is expected to grow from $2.98 billion in 2023 to $89.53 billion by 2032, which translates to a CAGR of 46%.

With Blackwell production now running at full steam, I do expect the company to make more announcements in the coming quarters regarding Industrial AI. If last quarter was about Sovereign AI, then this quarter was all about Industrial AI. It is this ability to capture every potential opportunity regarding AI that makes it difficult for competitors to knock NVDA off the top.

A Quarter Where Every Segment Dominated, but Keep an Eye Out for Automotive & Robotics

Industrial AI and Sovereign AI are the long-term growth drivers, but it doesn’t mean that investors have no reason to cheer in the near-term. Q3 was a quarter where every single sector of the company dominated and delivered a strong performance.

In addition to delivering record Datacenter revenues, the company also saw its other segments deliver a strong quarterly performance, with all of them registering double-digit y/y growth. As mentioned earlier, gaming continued its momentum, with revenues jumping 15% y/y. In addition, the Professional Visualization segment saw revenues jump 17% y/y and Automotive & Robotics continued to see strong growth with revenues jumping 30% sequentially and 72% y/y.

In my last article on NVDA, I touched upon how important it is for investors to not ignore the automotive division, especially with autonomous vehicles taking center stage. They are expected to receive even greater attention now that Tesla’s (TSLA) Robotaxi plans got a boost via Elon Musk’s proximity to President-elect Trump.

The field of robotics is also expected to grow in the coming years, once again thanks to Tesla’s plans of launching Optimus for commercial use by 2026. Regarding humanoid robots, NVDA has taken a unique approach of aiming to be a technology provider rather than building its own robots. To that extent, in the third quarter, the company announced Project GR00T AI & simulation tools for humanoid robot development as well as new generative AI tools for robotics developers.

Furthermore, before the earnings report, a senior NVDA executive mentioned that the company is set to bring its Jetson Thor computers to the market in the first half of 2025. Jetson Thor, the company’s latest product built on the Jetson platform, is focused on powering humanoid robots. Fortune Business Insights projects the global humanoid robot market size to reach $66 billion by 2032, which translates to a CAGR of 45.5%. So in addition to autonomous vehicles, NVDA is also laying the groundwork to capture a significant portion of the Robotics market as well.

Today, NVDA may primarily be a Datacenter company, and rightfully so. However, in case competition does catch up in that space as expected, then the Automotive & Robotics division of the company is more than ready to take on the mantle as a growth driver, in my opinion.

Valuation

Forward P/E Multiple Approach
Price Target	$167.00
Projected Forward P/E multiple	36.6x
Projected FY25 EPS	$2.90
Projected Earnings Growth Rate	57.4%
Projected FY26 EPS	$4.56

Click to enlarge

Source: Company’s Q3FY25 Press Release, LSEG Data (formerly Refinitiv) and Author’s Calculations.

As mentioned earlier, management expected Q4 revenues to come in at $37.5 billion (+/- 2%). Q3 revenues came in at $35.1 billion, which comfortably beat the high-end of the company’s own guidance of $33.1 billion. While I do expect the company to do the same in Q4, I have adopted a conservative estimate and assumed Q4 revenues to come in at $38.25 billion, the high-end of the company’s guidance. Taken together, this would translate to FY25 revenues of $129.4 billion.

Q4 gross margins are expected to come in at 73.5% (+/- 0.5%). Once again, I am going to adopt a conservative approach and assume Q4 gross margins to come in at 73%, which translates to Q4 gross profits of $27.92 billion and FY25 gross profits of $97.05 billion. This is a reasonable estimate, since this would be in-line with the company’s expectations of full-year gross margins coming in at the mid-70s range (75% as per my estimates).

Q4 non-GAAP operating expenses are projected to come in at $3.4 billion, which takes the FY25 non-operating expenses to $11.74 billion. Other income and expense for Q4 are projected to be $400 million, which would put the FY25 other income and expenses at an income of $1.49 billion. Q4 tax rates are expected to be 16.5% (+/- 1%). I have assumed a tax rate of 15.5% for Q4.

Taken together, this translates to Q4 net income (after taxes) of $20.81 billion, and FY25 net income (after taxes) of $71.85 billion. The company used 24.77 billion weighted average diluted shares for its per-share computation, which results in FY25 non-GAAP diluted EPS to come in at $2.90, marginally lower than my previous estimate of $2.96, but still represents a y/y growth of approximately 144%.

The company, according to LSEG data (formerly Refinitiv) currently trades at a forward P/E of 36.6, lower than its 5-year historical median multiple of 40.1x but higher than its 10-year historical median multiple of 34.3x. It is, however, trading, in-line with its 2-year historical median multiple. Given that things are going better than expected, especially regarding Blackwell, I have assumed its current multiple of 36.6x for my calculations, slightly higher than my previous estimate of 35.6x.

The company’s 5-year trailing EPS CAGR, according to LSEG Data, stands at 51.22% whereas its mean long-term growth stands at 57.4%. The long-term growth rate of 57.4% is a reasonable estimate in my opinion, given the demand for its chips across multiple segments isn’t going away anytime soon. At this rate, FY26 EPS is projected to come in $4.56, higher than my previous estimate of $3.88.

At a forward P/E multiple of 36.6x and a projected EPS of $4.56 results in a price target of $167, which is higher than my previous target of $138 and represents an upside of about 14.5% from current levels. I am maintaining my BUY rating on the stock.

Risk Factors

The main risk factor to my bull-case is the potential issues that could occur with Blackwell. Blackwell has an extremely complex architecture, and the risk of something going wrong is high compared to Hopper. There were reports of over-heating, which the company was quick to dismiss, but in the future, such issues cannot be ruled out. Any major issues, which further delays the shipment of Blackwell, could affect its future revenues and margins.

Next, as I mentioned in my last article on NVDA, is the rising competition. In addition to AMD, even the hyperscalers are building their own chips to reduce their reliance on NVDA. While they might be a long way from catching up with NVDA, this is yet another risk factor, which has the potential to derail NVDA’s future growth and one that investors must factor in.

Finally, there’s the China factor. The company did see Datacenter revenues grow sequentially in the third quarter, but the overall revenues remain “well below the levels prior to the onset of export controls.” And with President-elect Trump’s potential tariffs on China looming, NVDA’s China business is likely to remain under pressure for the foreseeable future in my opinion.

Concluding Thoughts

NVDA had yet another phenomenal quarter. The company beat on both the top- and bottom-lines while delivering incredible y/y growth on both metrics. The guidance was also strong, although the so-called “whisper numbers,” which I find to be a strange metric to compare the company to, might say otherwise.

There were question marks surrounding Blackwell, but the company emphatically answered them in my opinion. Furthermore, while last quarter’s focus was on Sovereign AI, this quarter showed how the company is well-positioned to capitalize on the future growth of “Industrial AI.” Moreover, its automotive & robotics business continued to maintain its strong growth, and the company also announced initiatives that place it in a strong position to benefit as a technology provider to humanoid robots in the coming years.

The expectations always continue to defy logic when it comes to NVDA. But somehow, the company always manages to match them and beat them. Q3 was no different.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of NVDA 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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