This year, Nvidia (NVDA 0.80%) stock has been on fire, soaring more than 170% so far, and there have been plenty of good reasons for this top performance. The tech giant has proven its dominance in the artificial intelligence (AI) chip market, showing that the world's biggest AI customers are lining up to get their hands on its latest platform. Nvidia says demand for its upcoming Blackwell architecture and chip has surpassed supply, and that's set to continue.
The company's successes have translated into massive earnings growth, with quarterly net income and revenue climbing in the triple digits in recent times. This has led to other milestones for Nvidia too. For example, the Dow Jones Industrial Average invited the company to join. And Nvidia's market cap, thanks to its incredible stock performance, has skyrocketed, helping it temporarily soar past Apple to become the world's most valuable company. (It's since returned to the second spot, with a market value of $3.3 trillion.)
All of this sounds fantastic. But if you're considering buying Nvidia stock or already hold shares, there's one potentially disappointing thing about the company you need to know right now.
Image source: Getty Images.
Nvidia's soaring market value
First, though, a quick summary of the Nvidia story so far. Nvidia wasn't always a technology giant. As recently as 2019, Nvidia's market cap totaled less than $100 billion. And five years before that, the company registered a market value of less than $10 billion. Nvidia historically was known for its top-performing graphics processing units (GPUs), chips that power the exciting sounds and images of video games; the gaming industry was its biggest customer.
But it was clear the GPU could be useful in other industries too, so Nvidia expanded its focus, and with the AI boom, Nvidia's GPU saw demand soar. As the ideal tool to accelerate crucial AI tasks such as the training and inferencing of models, Nvidia's GPU soon became the go-to chip for companies developing AI platforms.
NASDAQ: NVDA
Key Data Points
Nvidia has expanded well beyond the GPU and today offers a wide variety of AI products and services, making it almost the one-stop shop for AI customers. And today, Nvidia has reached a key milestone: the launch of Blackwell. In the third quarter, the tech giant shipped 13,000 GPU samples and currently is in the process of ramping production.
Now, let's consider the one disappointing element that could perturb some investors and even weigh on Nvidia's stock performance. And here I'm talking about revenue growth. As mentioned earlier, the company has steadily delivered triple-digit growth quarter after quarter -- until this recent Q3. Revenue growth slowed to the double digits, climbing 94% to more than $35 billion. And the company predicts revenue growth of about 70% year over year for Q4, showing a continued slowdown.
What some growth investors may do
Seeing this trend, some growth investors may be disappointed and turn away from Nvidia in favor of smaller up-and-coming companies that offer higher growth levels. This may weigh on stock performance.
It would be great if Nvidia could continue generating triple-digit revenue growth even after becoming a well-established market giant. But, realistically speaking, once a company reaches the level of revenue Nvidia has reached, it's much more difficult to deliver triple-digit growth every quarter. A year ago, Nvidia's comparison quarters were much easier to beat than they are today. Just two years ago, Nvidia reported Q3 revenue of only $5.9 billion. This year's Q3 represents a 490% gain from that level.
This means that, though it may be disappointing to see slower growth, it isn't a negative sign and doesn't really suggest a slowdown. Demand for Nvidia's products and services is booming, and the company maintains a gross margin of more than 70%, showing high profitability on sales. So, it's important to put the slowdown in growth into context, and when this is done, it's clear that Nvidia isn't losing steam but instead moving on to its next phase of growth, which, considering solid growth prospects for the AI market, could lead to mind-boggling revenue well into the future.
