What Nvidia’s earnings say about the AI semiconductor trade

Tom Lauricella | Morningstar

Nvidia (NYSE: NVDA) recently announced its third-quarter earnings, providing an important window into the artificial intelligence boom, one of the most dominant trends in the stock market over the past 18 months.

We checked in with Morningstar equity strategist Brian Colello, who follows Nvidia, and our other tech stock analysts for key takeaways on the semiconductor company’s earnings and investment in semiconductors among major players in the AI boom.

Nvidia’s Earnings

“Nvidia reported strong fiscal third-quarter results and gave investors a forecast for the January 2025 quarter ahead of our prior expectations and FactSet consensus estimates, albeit not as far ahead of consensus as in recent quarters. We raised our fair value estimate to $130 per share from $105, as we think Nvidia’s supply chain will expand faster than previously expected, allowing Nvidia to sell more AI products in the near and medium terms. We’re also modestly more optimistic about long-term gross margins.”

—Brian Colello

Source: Morningstar

Nvidia Stock and Market Impact

Even as the overall rally in US stocks has broadened beyond the kind of large-company technology stocks that led gains from the 2022 bear market low through this summer, Nvidia continues to dominate market returns, thanks to its massive size and gains. With a market capitalization of $3.1 trillion, Nvidia is the second-largest publicly traded company in the world. Meanwhile, its stock price has tripled this year. As a result, the firm is responsible for more than 20% of the returns in the Morningstar US Market Index, and more among narrower slices of the US stock market, according to Morningstar Direct.

Nvidia Revenue Outlook

“We still see no slowdown in AI spending or the AI accelerator market. NVDA’s latest Blackwell products are sold out until the end of calendar 2025, so we model incremental revenue growth over the next four quarters as more supply comes online.”

—Brian Colello

Source: Morningstar

Nvidia Data Center Revenue

“For the past six quarters, Nvidia has increased its data center revenue by roughly $4 billion per quarter. We think this increase comes from the firm’s supply chain partners expanding capacity so that Nvidia can meet the insatiable demand for its AI data center products. We anticipate that Nvidia’s guidance for the January quarter will once again prove conservative, and we estimate that the company will earn $4 billion more in incremental revenue for the seventh straight quarter, reaching nearly $35 billion in data center revenue next quarter. For comparison, Nvidia earned $15 billion in its entire fiscal 2023.”

—Brian Colello

Note: Revenue figures for 2025-27 are Morningstar estimates

AI Accelerator Demand

Hyperscalers are companies that manage huge data centers. They are a critical source of demand for Nvidia’s chips.

“Nvidia’s largest customers, the hyperscale cloud companies, aren’t slowing down spending on AI accelerators, even if they acknowledge that they’d rather overspend than underspend during this arms race. We see no signs of excess GPUs in the supply chain or anybody hoarding Nvidia products.”

—Brian Colello

Source: Morningstar, and Morningstar estimates

Companies that offer cloud computing services constitute another important source of demand for digital semiconductors.

“The customers of the hyperscalers that rent computing capacity, such as software companies, startups, and R&D departments across thousands of companies and industries, likely aren’t slowing their AI development either. This all bodes well for ongoing AI expansion, which will require AI products from Nvidia.”

—Brian Colello

“Looking forward, we see growth in capital expenditures by the cloud providers as starting to level off in 2025. According to the management teams of the large cloud service providers, the current increase in investment is related to generative AI. The companies want to invest in front of demand and believe they see a myriad of demand signals from customers. We also think that while the initial cloud capacity buildouts were regional, generative AI capacity additions are global and simultaneous, which requires a great deal more up-front capital.”

—Dan Romanoff, senior equity research analyst

Source: Morningstar
 

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