NVIDIA a Lucrative Buy With Solid Visions, Execution and Innovation

On Feb. 26, after the closing bell, NVIDIA Corp. NVDA — the undisputed global leader of the generative artificial intelligence (AI)-powered graphical processing units (GPUs) — released outstanding fourth-quarter fiscal 2025 earnings results and strong guidance for first-quarter fiscal 2026. Yet, the stock price of NVDA plummeted 8.5% on Feb. 27 on concerns of a minor miss in adjusted gross margin and slowing growth of year-over-year revenues and earnings as we have seen in the last several quarters. Concerns about a possible tariff on NVIDIA’s inputs and export restrictions also dampened investors’ sentiment.Irrespective of these drawbacks, NVIDIA has been able to keep the flag high with its path-breaking vision, innovation and solid execution. The recent decline in stock price has actually placed NVDA in negative territory year to date. We believe that, at this stage, NVIDIA offers a lucrative buying opportunity for the rest of 2025.Outstanding Q4 Fiscal 2025 Earnings ResultsNVIDIA came up with quarterly adjusted earnings of $0.89 per share, beating the Zacks Consensus Estimate of $0.84 per share. This compares to earnings of $0.52 per share a year ago. Reported quarterly revenues of $39.33 billion compare to the Zacks Consensus Estimate of $37.72 billion, representing a surprise of +4.3%. Despite this stellar performance, a section of financial researchers is complaining about slowing growth. NVIDIA’s non-GAAP gross margin of 73.5% reflects a contraction of 3.2% on a year-over-year basis and 1.5% sequentially. This was primarily due to a transition to more complex and higher-cost systems within the Data Center segment.The Data Center revenues came in at $35.58 billion compared with the consensus estimate of $33.51 billion, marking a jump of 93% year over year. Within this segment, Computing revenues were $$32.56 billion versus the consensus mark of $30.22 billion. Networking revenues were $3.02 billion versus the consensus estimate of $3.35 billion.Most importantly, NVDA has mostly resolved the supply-related issues of its next-generation Blackwell chips and ramped up its production and shipment. In the reported quarter, the company sold $11 billion Blackwell chips, higher than the consensus estimate of $6-7 billion. Strong Guidance NVIDIA expects an impressive first quarter fiscal 2026 buoyed by rock-solid demand for its AI-powered GPUs, and downplayed the Chinese DeepSeek-related availability of low-cost solution concerns. NVDA’s CEO Jensen Huang said that the next-generation AI model requires more computing power. Per Huang, “The amount of computation necessary to do that reasoning process is 100 times more than what we used to do.”NVDA anticipates first-quarter fiscal 2026 revenues of $43 billion (+/-2%), higher than the current Zacks Consensus Estimate of $41.06 billion. The non-GAAP gross margin is projected at 71% (+/-50 bps). Non-GAAP operating expenses are estimated at $3.6 billion. The consensus mark for non-GAAP gross margin is 72.1%. Nevertheless, an adjusted gross margin of more than 70% for a company that is the leader of a highly competitive high-end industry is something commendable. NVDA’s Growth to Generate From Robust AI SpendingAI frenzy will continue with astonishing spending. The four major data center operators — Meta Platforms Inc. META, Alphabet Inc. GOOGL, Microsoft Crop. MSFT and Amazon.com Inc. AMZN pledged $325 billion as AI expenditure in 2025. On Jan 21, President Donald Trump unveiled a joint venture called “Stargate” with OpenAI, Oracle Corp. (ORCL) and Softbank. The project will create an AI infrastructure, especially data centers in the United States. The initial investment of $100 billion can go up to $500 billion in the next four years. This expenditure will be in addition to Softbank’s pledge of $100 billion in December to create AI infrastructure in the United States.Apple Inc. (AAPL) has decided to invest $500 billion over the next four years, part of which will be spent on developing and manufacturing AI servers to power its Apple Intelligence AI tools. Moreover, Meta Platforms is reportedly planning to construct a new data center campus for its AI projects, with potential costs exceeding $200 billion.Continuous Innovations For all the above-mentioned companies, NVIDIA is the largest chipset supplier. In addition to Blackwell, on June 2, 2024, NVDA unveiled its new AI chip architecture called Rubin. The Rubin architecture will have new GPUs to launch AI systems, CPUs and networking chips. It will also have new features like a central processor called Vera. Rubin is expected to be introduced in 2026.The automative industry may become another growth driver for NVIDIA in the future. In the last reported quarter, Automative segment revenues came in at $570 million compared with the consensus estimate of $472.35 million, up 102.9% year over year. The Automative segment’s growth was primarily driven by NVDA’s self-driving platforms. The company is increasingly focusing on powering ADAS, autonomous vehicles, and robotics. Excellent Estimate Revisions for NVDA StockNVIDIA has an expected revenue and earnings growth rate of 45% and 41.1%, respectively, for the current year (ending January 2026). The Zacks Consensus Estimate for current-year earnings has improved 0.2% in the last seven days.It has an expected revenue and earnings growth rate of 21.7% and 25.5%, respectively, for next year (ending January 2027). The Zacks Consensus Estimate for next-year earnings has improved 0.4% in the last seven days. NVDA has a long-term (3-5 years) EPS growth rate of 20%, outpacing the S&P 500 Index’s 12.2% growth rate. Image Source: Zacks Investment ResearchLucrative Valuation of NVDA SharesNVIDIA currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company has a return on equity (ROE) of 122.83% compared with the S&P 500’s ROE of 17.1% and the industry’s ROE of a mere 6.4%. NVDA has a current net margin of 55.85% compared with the industry’s net margin of 8.4% and the S&P 500’s net margin of 12.57%. It has forward P/E (price/earnings) of 31.14% compared with the industry’s P/E of 31.01% and the S&P 500’s P/E of 18.9%.As of Jan. 26, 2025, NVDA’s cash, cash equivalents and marketable securities were $43.2 billion, up from $38.4 billion as of Oct. 27, 2024. The increases primarily reflect higher revenues partially offset by stock repurchases. As of Jan. 26, the total long-term debt was $8.46 billion, which remained unchanged sequentially. NVIDIA generated $16.6 billion in operating cash flow, up from the year-ago quarter’s $11.5 billionThe short-term average price target of brokerage firms for the stock represents an increase of 35% from the last closing price of $120.15. The brokerage target price is currently in the range of $220-$135. This indicates a maximum upside of 83.3% and no downside. Image Source: Zacks Investment ResearchInvestment Thesis for NVDAShares of NVDA have seen a growth rate of -10.5% year to date. However, given that earnings estimate revisions are likely to trend higher in the coming weeks, many analysts are expected to raise their price targets. This will make NVDA’s risk/reward ratio more favorable.NVIDIA represents a rare opportunity to invest in a company with proven execution and substantial unrealized potential in the AI revolution. At this stage, it will be prudent to buy this stock on every dip. Create a systematic investment plan for this stock to do a cost average. Hold this stock for the long term as the company’s strong execution of the last several quarters and robust future projections will generate more value. Consequently, the stock price of NVIDIA should witness an attractive upside. The chart below shows the price performance of NVDA year to date.Image Source: Zacks Investment Research7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report NVIDIA Corporation (NVDA): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis Report Meta Platforms, Inc. (META): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks