Nvidia(NASDAQ: NVDA) has established itself as a successful investment over time, climbing more than 2,700% over the past five years. And momentum has strengthened as this top chip designer reported quarter after quarter of triple-digit earnings growth. This is thanks to the dominance Nvidia has built in the artificial intelligence (AI) chip market, with the company now holding about 80% share.
And Nvidia isn’t only winning in AI chips but in the entire AI market, which is forecast to grow from $200 billion today to $1 trillion by the end of the decade. This is because Nvidia offers a wide variety of products and services to suit any company developing an AI platform. Speaking on a BG2 podcast earlier this month, CEO Jensen Huang referred to the company as the “on ramp” to the AI world.
Next up for Nvidia is the company’s third-quarter earnings report, scheduled for Nov. 20. Investors will focus on earnings figures, the ability of Nvidia to meet its gross margin goal, and comments about an important upcoming product launch. Should you buy Nvidia stock before this key report? Let’s take a look at what history has to say.
Image source: Getty Images.
First, let’s consider what investors are expecting from the tech giant. Nvidia has forecast double-digit revenue growth, slower than the recent triple-digit growth. But it’s important to keep in mind that comparison quarters are getting tougher, with Nvidia’s last third quarter already bringing in more revenue than the company made in an entire year just a few years ago — back in fiscal 2021. So double-digit growth should still be considered extremely strong performance at this stage of the Nvidia story.
The company, which last quarter reported gross margin of 75%, aims to maintain the greater than 70% margin level. It’s forecast gross margin in the mid-70% range for the third quarter and the full year. This level of profitability along with double-digit revenue growth should reinforce investors’ confidence in this top tech player.
Finally, investors will be looking for comments about the upcoming launch of Nvidia’s Blackwell architecture and best-performing chip ever. So far, so good — with Nvidia’s Huang saying on the latest earnings call that demand surpassed supply and that should continue into next year.
Now, let’s consider how Nvidia’s stock may react to the Nov. 20 earnings report. And one way to do that is to look at historical trends for Nvidia following these reports. Looking back at the past eight quarters, Nvidia stock rose on six of those occasions in the one-month period following the report. And four of those times, the stock posted double-digit gains.
It’s important to note that stocks don’t always follow historical trends, so even though these findings suggest Nvidia may rise if the company delivers positive news, it’s not guaranteed. It’s impossible to predict short-term stock performance as stocks and the market have been known to surprise us.
So now let’s get back to our question. Should you buy Nvidia before Nov. 20? Historical trends offer us reason to be optimistic about a near-term gain, but more importantly, investors should consider Nvidia’s potential for performance over the long term.
The trend of revenue growth and solid gross margin could continue well into the future, and here’s why. Nvidia already is a leader, with customers ready to wait to get their hands on the latest product, and the company has pledged to innovate on an annual basis. On top of this, Nvidia is set to gain in efficiency as the company moves past the early production and launch stages for Blackwell and processes become more of a routine. This should help Nvidia maintain its wide margins.
All of this means if you buy before Nov. 20 and benefit from an increase — fantastic. But if the stock stagnates or slips after the report or if you buy Nvidia at a later date and miss out on a post-earnings rally, don’t worry. Near-term movements won’t have much impact on your returns over time. So, Nvidia makes a great buy for investors before or after Nov. 20 because the company has what it takes to excel over the long term.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
