Nvidia (NVDA +2.58%) is the world's leading supplier of graphics processing units (GPUs) for data centers, which are used in the development of artificial intelligence (AI). Over the last two years alone, GPU sales have helped Nvidia add $3.2 trillion to its valuation.
The company just reported results for the fiscal 2025 third quarter (ended Oct. 27) after the market closed on Nov. 20, and they obliterated Wall Street's expectations. It just started shipping a new generation of GPUs based on its powerful Blackwell architecture, and demand is heavily outstripping supply.
Nevertheless, the stock sank 2.5% in after-hours trading following the third-quarter report. I predict shares are going to soar over the next 12 months, so here's why any weakness might be a buying opportunity.
Image source: Nvidia.
Blackwell demand is "staggering"
In the past, data centers were built with central processing units (CPUs), which were great for handling a small number of specific tasks with high efficiency. However, GPUs are designed for parallel processing, meaning they can handle numerous tasks at the same time with a very high throughput.
That's crucial when it comes to training AI models and performing AI inference, because those workloads require chips that can rapidly absorb and process trillions of data points.
GPUs built on Nvidia's Hopper architecture -- like the H100 and H200 -- have been the go-to choice for AI development so far. Data center operators like Microsoft and Amazon buy tens of thousands of those GPUs and rent their computing power to businesses and AI developers, which can't afford to build their own infrastructure (a single H100 can sell for up to $40,000).
Now, a new age of AI computing has arrived with Nvidia's Blackwell GPU architecture. The Blackwell-based GB200 NVL72 system can perform AI inference 30 times faster than the equivalent H100 system.
A recent estimate suggests an individual GB200 GPU within an NVL72 system costs around $83,333, so developers are getting that 30-fold increase in AI inference performance for a mere twofold increase in price compared to the H100.
In other words, the Blackwell GPUs should drive an incredible increase in cost efficiency, so more businesses and developers can afford to deploy the most advanced AI large language models (LLMs).
Nvidia shipped 13,000 Blackwell GPU samples to customers during the third quarter. Microsoft, Dell, and CoreWeave have already started building Blackwell-based data centers, and Oracle customers will soon be able to access computing clusters with a staggering 131,000 Blackwell GPUs.
Nvidia CEO Jensen Huang says Blackwell demand is "staggering." GPU shipments could soar more than 20-fold in the next few months alone, but I'll discuss that further in a moment.
Nvidia just obliterated Wall Street's expectations
Coming into the third-quarter report, the consensus estimate among Wall Street analysts suggested Nvidia would deliver $33.2 billion in total revenue. The company blew that out of the water with $35.1 billion in sales, which was a 94% increase from the year-ago period.
The data center segment alone accounted for $30.8 billion of that total, which represented 112% growth. The majority of that money was attributable to GPU sales.
The company also exceeded expectations with its guidance for the current fiscal 2025 fourth quarter (which will finish at the end of January). It told investors it plans to deliver $37.5 billion in total revenue, compared to Wall Street's estimate of $37.1 billion.
Huang previously said he expected Blackwell GPUs to contribute "several billion dollars" in revenue during the fourth quarter, but he now says the company is on track to exceed that estimate, although he didn't offer a specific dollar figure.
NASDAQ: NVDA
Key Data Points
Why I think Nvidia stock will soar over the next 12 months
As I mentioned earlier, the stock suffered a modest dip in after-hours trading following the release of its third-quarter report. That's surprising because the company beat expectations on every level. But the stock is up 202% this year, so it's possible some investors simply decided to take profits.
Let's talk about valuation. Based on Nvidia's trailing-12-month earnings per share of $2.62, its stock trades at a price-to-earnings ratio (P/E) of 54.2. That's actually a discount to its average P/E of 58.6 over the last 10 years.
The important number is that Wall Street thinks Nvidia will generate $4.21 in earnings per share in fiscal 2026, which starts in a few months. That places it at a forward P/E of 33.8, which means its stock will have to soar 73% throughout next year just for its P/E to trade in line with its 10-year average of 58.6.
Surging Blackwell shipments could support my prediction
In my opinion, Wall Street's fiscal 2026 earnings estimate might actually be too conservative! I mentioned earlier that Nvidia shipped 13,000 Blackwell GPUs to customers during the third quarter. Morgan Stanley says the company is on track to ship up to 300,000 units in the final three months of calendar year 2024, followed by up to 800,000 units in the first three months of 2025.
In other words, Blackwell shipments could surge by at least 20-fold in Nvidia's current fiscal 2025 fourth quarter compared to the third.
Plus, Morgan Stanley thinks Microsoft, Amazon, Alphabet, and Meta Platforms will spend a combined $300 billion on AI data center infrastructure next year, with a significant portion going toward GPUs. Those are only four of Nvidia's top customers; OpenAI, Oracle, or even Tesla are also big spenders.
Therefore, I think there is a very good chance that the stock delivers a gain of 73% or more next year.
