Has Nvidia (NASDAQ: NVDA) finally run out of earnings surprises?
The high-flying AI chip superstar seemed to run out of gas in the fiscal 2025 second-quarter earnings report it released on Aug. 28. While the company beat estimates on the top and bottom lines, the differences were narrower than investors were used to, and guidance was also less impressive than some had hoped.
Additionally, the company reported its first sequential decline in gross margin since demand for its graphics processing units (GPUs) surged following the launch of OpenAI’s ChatGPT, a sign the chipmaker’s profitability has peaked.
Since then, Nvidia has continued to pull back, falling Tuesday on a report it was subpoenaed by the Department of Justice as part of an antitrust investigation. The company later said it had not received a subpoena.
Nonetheless, as of its close on Sept. 6, the stock was down 18% from where it was trading before the earnings report came out.
That sets up a potential buying opportunity for investors as the stock is now about as cheap as it’s been (on a valuation basis) since the AI boom began, trading at a price-to-earnings ratio of 49.
For investors considering buying the dip on Nvidia, the AI stock is well-positioned to recoup its recent losses in the fourth quarter and move higher. Let’s take a look at a few reasons why.
1. The Blackwell launch could be huge
The launch of Nvidia’s new Blackwell platform has been eagerly awaited since the company announced it in March at its GTC conference.
The new GPU ecosystem has been delayed about three months due to a design flaw, but it’s expected to be ready to go in the fourth quarter. According to Nvidia, Blackwell is able to run generative AI programs and massive large language models at up to 25 times less cost and energy requirements than the earlier Hopper model. That could be a game-changer for the AI industry in the wide range of companies depending on Nvidia GPUs.
CFO Colette Kress told investors on the recent earnings call, “Demand for Blackwell platforms is well above supply, and we expect this to continue into next year.”
The launch of the platform should support the company’s growth and margins, and a successful rollout is likely to lift the stock as well.
Investors will be closely watching management’s guidance when the company reports its fiscal third-quarter earnings in November for signs of Blackwell’s impact.
2. Falling interest rates should be a tailwind
The Fed is expected to cut interest rates at its meeting later this month, and rate cuts are likely to fuel gains for Nvidia and much of the stock market. Lower interest rates will encourage more consumer spending and business investment, and they tend to favor growth stocks like Nvidia as well.
There has already been evidence of this as Nvidia stock jumped 4.5% on Aug. 23 after Fed Chair Jerome Powell indicated the time had come for the central bank to begin to cut rates.
Assuming rates come down as fast or even faster than expected, Nvidia is likely to benefit.
3. Infrastructure spending is set to keep ramping up
Much of Nvidia’s demand comes from cloud infrastructure giants like Microsoft, Alphabet, Meta Platforms, and Amazon, and those companies look set to continue ramping up their purchases of Nvidia’s components as they build out their AI capacity.
Top tech CEOs like Meta’s Mark Zuckerberg and Tesla‘s Elon Musk have stressed the importance of staying ahead in the AI race as the consequences of falling behind could be much greater than overspending on AI hardware.
Additionally, Q4 tends to be a strong quarter in the tech industry, particularly in cloud software and infrastructure, and solid demand there should support further spending on Nvidia’s products.
After pulling back following its fiscal second-quarter report, Nvidia benefits from lower expectations and a more attractive stock price. If the company executes well on its Blackwell launch, not to mention any boost from the macroeconomic environment, it could be racing back toward its previous highs in the fourth quarter and beyond.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Prediction: Nvidia Stock Is Going to Soar in Q4 was originally published by The Motley Fool
