Stock of the Week - NVIDIA (27.02.2025)

 NVIDIA reported record quarterly revenue of $39.3 billion in Q4 FY2025, up 78% year-over-year, continuing its dominance as the AI computing leader despite market expectations for even stronger results. The stock dipped slightly in after-hours trading following the announcement, reflecting increasingly high growth expectations despite extraordinary performance, as investors digest both robust near-term guidance and concerns about sustainability of AI spending. It was able to bounce back and is up one percent in premarket trading.

Revenue & Profitability: NVIDIA reported total revenue of $39.3 billion, representing a substantial increase of 78% year-over-year and 12% quarter-over-quarter. The company achieved an adjusted EPS of $0.89, which translates to impressive growth of 71% year-over-year and 10% quarter-over-quarter. GAAP net income reached $22.09 billion, marking an 80% increase compared to the same period last year. Gross margin stood at 73.5%, though the company expects this to temporarily decline to approximately 71% in Q1 FY2026 as it ramps up production of its new Blackwell architecture.

Earnings vs Estimates. Souce: Bloomberg L.P.

Segment Performance: The Data Center segment continues to be NVIDIA's primary growth engine, generating revenue of $35.6 billion, up 93% year-over-year and 16% quarter-over-quarter. This segment now accounts for over 90% of the company's total revenue, underscoring NVIDIA's pivotal role in the AI infrastructure build-out. Gaming revenue declined to $2.5 billion, down 11% year-over-year and 22% quarter-over-quarter, reflecting a shift in focus toward AI computing. Automotive revenue showed remarkable growth of 103% year-over-year, reaching $570 million, driven by expanding partnerships with major automakers. Professional Visualization revenue grew by 10% year-over-year to $511 million, supported by increasing adoption of NVIDIA Omniverse in industrial AI applications.

Key Financial Metrics: For the full fiscal year 2025, NVIDIA achieved record revenue of $130.5 billion, representing extraordinary growth of 114% compared to the previous year. Full-year earnings per share reached $2.94 on a GAAP basis and $2.99 on a non-GAAP basis. The company's market capitalization stands at approximately $3.22 trillion, making it one of the world's most valuable companies. 

FY2026 Q1 Guidance: Looking ahead to the first quarter of fiscal 2026, NVIDIA projects revenue of approximately $43 billion (plus or minus 2%), exceeding analyst consensus estimates of $42.3 billion. The company anticipates gross margins of 70.6% on a GAAP basis and 71.0% on a non-GAAP basis, with expectations for recovery to the mid-70s range by the end of the fiscal year as Blackwell production scales and manufacturing efficiencies improve.

Strategic Position: AI Infrastructure Leadership

The company's Blackwell architecture has driven exceptional demand, with CEO Jensen Huang reporting "extraordinary" demand and $11 billion in revenue during its first quarter of shipping, far exceeding analyst expectations of $3.5 billion.

NVIDIA's technological advantage has created significant barriers to entry, with its full-stack approach integrating hardware, software, and developer ecosystems providing competitive insulation despite emerging competition. The company's growth rate dramatically outpaces tech megacap peers, with Apple, Microsoft, Amazon, Meta, and Alphabet averaging just 11.8% revenue growth in their December quarters compared to NVIDIA's 78%.

AI Market Development

The AI market continues to demonstrate robust expansion despite concerns of a spending slowdown. Hyperscalers (AWS, Azure, Google Cloud) remain committed to infrastructure build-out, deploying NVIDIA's GB200 systems for trillion-parameter model training. Enterprise adoption is accelerating, with particular strength in financial services, healthcare, and manufacturing sectors implementing domain-specific AI solutions.

The emergence of reasoning models, exemplified by Chinese startup DeepSeek's R1, initially sparked market concerns but may actually increase compute demand according to CEO Jensen Huang, who noted that such models require "millions of times more computing power than today." This suggests the AI compute demand trajectory remains intact despite evolving model architectures.

Strategic Challenges and Opportunities

NVIDIA faces several significant challenges, including potential margin compression as it ramps Blackwell production, with gross margins expected to temporarily decline to approximately 71% in Q1 before recovering. Export controls on China have significantly impacted NVIDIA's presence in that market, with CEO Huang noting that "percentage revenues in China before export controls was twice as high as it is now," reducing from 21% to approximately 13% of total revenue.

Competition is intensifying, with NVIDIA explicitly acknowledging Huawei as a competitor for the second consecutive year. Huang described the Chinese competitive landscape as "quite vigorous and very, very competitive," although NVIDIA's technological moat remains substantial.

Key opportunities include the upcoming Blackwell Ultra product launching later this year, followed by the next-generation Rubin architecture in 2026. The U.S. government's $500 billion Stargate project represents a significant growth driver, as does expanding automotive partnerships with Toyota and Hyundai, which drove 103% year-over-year growth in automotive revenue.

Valuation 

Based on our analysis of NVIDIA using the provided sensitivity tables, we've developed projections incorporating various growth scenarios. Our base case DCF model uses the following key assumptions:

Core Operating Assumptions:

• Revenue growth rate: 29.0-30.0% for the initial period

• Operating margin: 61.0-62.0%

• Terminal WACC: 10.0-10.2%

• Current price: $131.28

DCF Sensitivity Analysis Our sensitivity analysis reveals interesting dynamics at different operating scenarios. With a 29.0% revenue growth rate and 61.0% operating margin, the model suggests a fair value of $137.81. Increasing the revenue growth to 30.0% with a 62.0% operating margin would push the implied value to $145.36, suggesting approximately 10.7% upside potential from current levels.

The terminal value sensitivity analysis, using various WACC and growth scenarios, shows that with a terminal revenue growth rate of 4.8% and terminal WACC of 10.0%, the model suggests a fair value around $133.15. However, if terminal growth improves to 5.0% with the same WACC of 10.0%, the implied value increases to $137.81. The valuation suggests limited growth potential, presenting an opportunity to consider the shares if the price declines.

Source: Bloomberg Finance LP, XTB Research

Source: Bloomberg Finance LP, XTB Research

Recommendations: 

NVIDIA has 76 recommendations, with 67 "buy" and highest price of $220, 9 “hold” with lowest price of $65.6 and 0 “sell”. The 12-month average stock price forecast is $175.42, implying a 33.4% upside potential from the current price.

Technical analysis (Daily interval): 

The stock is trading above the 38.2% Fibonacci retracement level, which has acted as support for bulls in recent months. Bears will look for a retest of the 61.8% Fibonacci retracement level, which previously led to a quick rebound. Bulls should monitor the RSI for a possible bearish divergence with a lower high. Meanwhile, the MACD has generated a buy signal.