Nvidia Corporation (NASDAQ:NVDA) has done it again with a walloping $2 billion revenue beat in the third quarter, in further proof that Wall Street simply cannot get a grip on the fabless semiconductor giant’s persistent growth.
Third-quarter sales came to $18.12 billion, more than triple what it reported in the year-ago quarter and well above Street expectations of $16.18 billion.
With shares up over 240% year to date, Nvidia’s quarterly reports have become a hotly watched spot on the financial calendar.
How did the Street respond this time around?
New revenue opportunities emerge for Nvidia
In JPMorgan Chase & Co (NYSE:JPM)’s view, Nvidia managed to match the high expectations placed on the company, while delivering results and forecasts that were above market expectations.
Nvidia continues to perform well across all segments but unsurprisingly JPMorgan sees the greatest upside in data centres, which comprises Nvidia’s AI chip sales.
“We expect the data centre segment to grow strongly as hyperscale customers continue to embrace GPU-accelerated deep learning for processing large data sets,” said JPMorgan.
Nvidia has enjoyed a knock-on effect from its skyrocketing data centre segment in the form of surging demand for its ethernet networking solutions.
According to JPMorgan’s analysis, the networking business now exceeds $10 billion on an annualised revenue run rate, with demand expected to continue into 2024.
The bank continued: “We are encouraged by strength in the automotive and enterprise segments as well, although strong adoption of autonomous driving in the market remains to be seen,” the bank added. “We anticipate significant upside in the shares, driving our overweight rating.”
JPMorgan upped its price target from $600 to $650.
Nvidia’s trajectory ‘continues to be unprecedented’
Given Nvidia’s 250% year-to-date rally, it’s reasonable to be worried about a humungous correction.
But Morgan Stanely contended Nvidia’s third-quarter earnings helped lower concerns of an impended bursting of the bubble.
“Nvidia had a very strong quarter - without the shock-and-awe upside of the last two quarters, but with a trajectory that should alleviate sustainability concerns,” said Morgan Stanley (NYSE:MS).
Rarely does a $2 billion revenue beat come without sock and awe, though in fairness, this is in comparison to Nvidia’s $4 billion beat last quarter.
Morgan Stanley (NYSE:MS) noted that guidance for low-teens quarter-on-quarter growth in January “would represent a material slowing”, but this isn’t necessarily a bad thing, stating: “A pattern of steady strong beats and raises is probably better for the stock longer term than an unsustainable trajectory.”
Morgan Stanley also touched on Nvidia’s $10 billion ethernet run rate, calling it a “remarkable” data point.
The bank has an overweight rating on the stock with a $603 price target.
Nvidia’s duration debate is worth having
Deutsche Bank contended that there is investor scepticism regarding the long-term sustainability of Nvidia’s remarkable growth.
Though Nvidia has made efforts to address these concerns by emphasising the vast opportunities in accelerated computing, AI training and new market opportunities, the bank touched on fears of inventory digestion periods, as seen in the second half of 2022 and the first half of 2019.
Deutsche Bank acknowledged the potential for continued growth, albeit at a slower pace, but expects investor doubts and valuation compression to persist
“AI tailwinds persist, but duration debate continues,” as the bank put it. Nonetheless, “positives outweigh negatives” when it comes to Nvidia.
Deutsche Bank remains more cautious than others, maintaining a hold rating with a $560 price target.