Wall Street analysts are encouraging investors to buy the latest pullback in Nvidia shares.
The AI darling’s quarterly forecast on Wednesday fell short of the lofty expectations set by investors, who have fueled a massive rally in its stock, betting heavily on the future of generative AI.
The chipmaker's shares fell around 3% in Thursday’s premarket trade, dragging down other chip stocks as well. Despite significant growth and profit, the results were seen as mixed.
For the quarter ending July 28, NVIDIA Corporation (NASDAQ:NVDA) posted adjusted earnings of $0.68 per share on revenue of $30.04 billion, surpassing analyst expectations of $0.64 per share and $28.68 billion in revenue.
The strong results were fueled by a 154% year-over-year increase in data center revenue, reaching $26.27 billion.
Looking ahead to Q3, Nvidia said it expects revenue of $32.5 billion, plus or minus 2%, ahead of Wall Street's estimate of $31.9 billion, and sees itself generating “several billions in Blackwell revenue” in Q4.
Nvidia has guided non-GAAP gross margins to 75.0%, in line with consensus expectations. For the full year, gross margins are expected to stay in the mid-70% range, with Q4 margins projected to be slightly lower than the approximately 75% achieved in FQ3.
What analysts say about Nvidia earnings
Although Nvidia's revenue and gross margin forecast didn't trounce Wall Street's targets as in previous quarters, analysts remained optimistic about the stock.
More concretely, analysts at UBS believe investors should “buy the pullback,” as key NVDA indicators are still bullish.
UBS particularly highlighted the surge in Nvidia’s purchase commitments and supply obligations, which they note is “the most important metric we watch and a harbinger of future growth.”
“In our view arguably the most bullish sign of the print was ~$10B increase in what we consider to be its total supply ($6.7B BS inventory + $27.8B purchase commitments),” analysts wrote.
“This was up ~40% Q/Q after growth in this number had slowed considerably the past few Qs and was up only 15% last Q after having been flat in FQ4.”
The bank’s analysts also said they are not concerned about gross margin and expect data center margins to remain fairly consistent throughout the Blackwell cycle, similar to the margins observed during the Hopper cycle.
Similarly, analysts at Bank of America reiterated a Buy rating on Nvidia stock after the report and raised the target price on the stock from $150 to $165.
BofA cautioned that the stock is “likely to be volatile” in the near term due to some of Nvidia’s projections missing elevated expectations, and flagged that rising Blackwell ramp costs could weigh on Q3 margins.
However, despite the noise, analysts stressed they “continue to believe in NVDA’s unique growth opportunity, execution and dominant 80%+ share as generative AI deployments are still in their first 1-1.5yr of what is at least a 3-4 year upfront investment cycle.”
“AI deployment remains a mission-critical imperative for global cloud/enterprise customers, with NVDA providing the best turnkey model,” they added.
The bank also highlighted Nvidia’s compelling valuation, with a price-to-earnings (PE) ratio of 30-35 times estimated CY25 earnings, or a PEG ratio of less than 1 relative to the expected EPS growth of over 40%.
This represents “a standout in not just semis but also in large-cap tech/growth,” BofA’s team emphasized.