By most standards, Nvidia (NVDA +0.19%) hit the ball out of the park with its fiscal 2025 second-quarter results. The company reported record revenue of $30 billion, a 122% year-over-year increase. It posted earnings that soared 168% from the prior-year period. Nvidia's guidance projected even higher revenue next quarter.
And yet the stock sank after these stellar numbers. Although Nvidia exceeded Wall Street estimates, the GPU maker didn't hit the "whisper" earnings number that was higher than the consensus public analysts' estimate.
Wall Street predicted Nvidia stock was headed lower even before its Q2 update. Here's what analysts think now.
NASDAQ: NVDA
Key Data Points
Bullish bears or bearish bulls
Before I get to analysts' current thinking about Nvidia, let me first assure you that I don't view any of them as having Nostradamus-like predictive powers. The average Wall Street price target for Nvidia before the company's Q2 update was roughly 2% below its closing price prior to the earnings release. However, this was a 12-month price target. Nvidia fell more than that almost immediately on the day after its Q2 announcement.
Importantly, most Wall Street analysts weren't all that negative about Nvidia. Of the 38 analysts surveyed by LSEG in August, 14 rated Nvidia as a "buy." Another seven recommended the stock as a "strong buy." That's a majority (55%) with positive views about Nvidia. Most of the other analysts -- 14 of them -- rated the stock as a "hold." Only two assigned a negative "underperform" or "sell" rating to Nvidia.
But the average price target still reflected an expectation that the stock would fall over the next 12 months. I describe the analysts who maintain positive ratings on Nvidia yet give it price targets lower than the current share price as bullish bears or bearish bulls. They want to have it both ways.
Sticking with their stories
Let's now shift to what analysts say about Nvidia after its Q2 update. LSEG reported that 18 analysts issued reports on Nvidia on Aug. 29 (the day after its quarterly earnings release). Guess how many changed their recommendation? Pat yourself on the back if you answered zero.
However, several analysts did adjust their 12-month price targets. The average price target is now roughly 5% below Nvidia's share price. Wall Street is still full of bullish bears/bearish bulls.
Analysts seem to be sticking with their stories. Most of them still like Nvidia. Only one of those 18 updates was less than positive -- and it was a "neutral" rating. But they nonetheless think the stock could decline.
The big question is: Why? Maybe it's because some analysts (perhaps many of them) don't believe Nvidia's customers will see positive returns on investment (ROI) with their purchases of the company's GPUs. For example, Goldman Sachs analyst Toshiya Hari asked in the Q2 earnings call about customer ROI, noting that "there's a pretty heated debate in the market" about the subject. TD Cowen's Matt Ramsay also raised a question about customer ROI.
Why Wall Street could be wrong about Nvidia
I think it's possible that Wall Street could be wrong about Nvidia's stock performance over the next 12 months. I also think those who don't expect Nvidia's customers to see strong ROI could be wrong.
Nvidia CEO Jensen Huang pushed back on skepticism about customer ROI. He argued in the Q2 earnings call, "The people who are investing in Nvidia infrastructure are getting returns on it right away."
Huang rightly noted that a major data center migration from CPUs to GPUs is underway. He highlighted the tremendous potential for Nvidia's new Blackwell architecture, which will begin shipping in fiscal 2025 Q4. He pointed out the promise of generative AI in robotics, software development, large-scale recommendation systems, and more.
All of this translates to significant growth prospects for Nvidia, not just over the next 12 months but over the next 10 years and beyond. We just might see Wall Street's price targets better align with their recommendations for the stock in the next few months as Nvidia begins to report its Blackwell revenue.
