Anticipated Boost: Nvidia's Shares Likely to Increase Post-Feb. 26th
Since the start of 2023, tech giant Nvidia (NVDA -0.58%) has experienced an astounding surge in its market cap, amounting to a staggering $2.8 trillion. This growth is largely attributed to the soaring demand for Nvidia's data center chips, which are vital for developing advanced artificial intelligence (AI) technology. However, the stock has taken a hit, dropping 11% from its January 2025 high, following a series of sell-offs.
The decline in Nvidia's share price can be traced back to a Chinese-based research lab, DeepSeek, who claimed to have discovered a method for training competitive AI models with an outsized reduction in computational power and financial resources compared to their American counterparts. This revelation sparked concerns that Nvidia's core business could be in jeopardy considering the increasing demand for data center chips.
On February 26, 2025, Nvidia will unveil its fourth-quarter earnings results for fiscal 2025 (end date: January 31). It's speculated that the details contained within this report will help alleviate some investor concerns. Here's a prediction on how the stock may react:
Nvidia's Top Customers Remain Bullish
The H100 GPUs, released by Nvidia in 2023, became the gold standard for AI data center chips, ultimately capturing an impressive 98% market share. However, the H200 and GPUs based on the Blackwell architecture quickly surpassed this model.
The groundbreaking Blackwell-based GB200 NVL72 system delivered AI inference at 30 times the pace of the equivalent H100 system, paving the way for innovative AI model deployment. In response, Nvidia CEO Jensen Huang referred to demand as "insane" shortly after its release. To date, sales have far exceeded expectations.
Initially, the DeepSeek revelation shook Wall Street's confidence. The Chinese startup claimed to have trained its V3 AI model with a mere $5.6 million investment, matching the performance of some of the best American AI models. What left investors skeptical was the utilization of older-generation Nvidia GPUs, leading to questions about the necessity of the latest and greatest Blackwell technology.
However, recent assurances from Nvidia's top customers, such as Meta Platforms, Alphabet, and Amazon, have helped dispel some concerns. In particular, Meta Platforms CEO, Mark Zuckerberg, spoke of anticipating an offset of reduced training workloads by increasing inference workloads. Concurrently, AI models now devote more time to "thinking" (test-time scaling). The social media giant has pledged to invest up to $65 billion on AI data center infrastructure in 2025, marking a significant increase from $39.2 billion spent in 2024.
Alphabet also announced substantial increases in its hardware investments this year, forecasting record capex of $75 billion. Amazon stated that they could potentially invest over $100 billion in 2025 to enhance their AI infrastructure.
Wall Street is Optimistic about Nvidia's Upcoming Report
Given that Nvidia's leading clients are increasing investments in chips and data centers, a grand financial performance from the company is a likely outcome. Wall Street's consensus estimate (Yahoo! Finance) predicts a revenue of $38.1 billion for Q4 2025, even surpassing Nvidia's own projection of $37.5 billion.
Approximately 88% of the total revenue is expected to stem from the data center segment, with GPU sales leading the charge. This would take Nvidia's total fiscal 2025 revenue to a record $129.3 billion, representing a significant 112% increase compared to fiscal 2024. Furthermore, with analysts predicting nearly $42 billion in revenue for Nvidia's fiscal 2026 first quarter, another positive report could be a strong indicator that DeepSeek-related concerns have greatly subsided.
Nvidia's Stock May Reach New Heights after the Q4 Results
When Nvidia reported Q3 results on November 20, 2024, its stock dropped approximately 7% in the subsequent five days. However, the decline was short-lived, with the stock nearly returning to its original level within two weeks. Recoveries like these emphasize the importance of maintaining a long-term view when investing in AI technologies, which is expected to unfold over years rather than weeks or months.
Currently, Nvidia's stock trades at a price-to-earnings (P/E) ratio of 51.1, which is a 13% discount compared to its 10-year average P/E ratio of 59.2. Given predicted earnings per share of $4.44 during the 2026 fiscal year, its P/E ratio would have to climb by 102% just for it to match its historical 10-year norm. In other words, Nvidia's stock will likely set new record highs in the coming months if the Q4 report indicates that DeepSeek-related developments are minimal.
Given the recent commentary and increased capex forecasts from Nvidia's giant clients, the upcoming Q4 report on February 26 is more likely to bring positive results than negatives.
After the reassuring statements from Nvidia's top clients like Meta Platforms, Alphabet, and Amazon about their continued investment in AI data center infrastructure, some investors might consider reinvesting in Nvidia's stocks, as they see potential for high returns in the finance sector, given the company's strong performance and the increasing demand for data center chips.
Considering the optimistic predictions about Nvidia's revenue and earnings in the upcoming quarterly report, along with the positive reactions from investors following previous reports, there is a possibility that Nvidia's stock price may experience a surge once again, given the potential for high returns in the investing arena.