NVIDIA’s Q3 FY25 Earnings: Record Revenue, Stock Dip, and the Big AI Bet

In many ways, this might already feel like old news, but here’s my take on NVIDIA’s Q3 FY25 earnings report (calendar Q3 2024).

First and foremost, NVIDIA is thriving. Their growth trajectory remains impressive, with quarterly revenue reaching an astounding $35 billion—a remarkable 94% year-over-year increase. At the same time, their gross margin remains robust, holding steady at around 75%.

This quarter marks a record high in revenue across all their business segments .

While NVIDIA set records in all segments, for me the most interesting story is NVIDIA’s rapid growth in the automotive sector (will explain this later). Revenue from this segment surged 30% quarter-over-quarter, driven in part by exciting developments like Volvo Cars rolling out its fully electric EX90 SUV, powered by NVIDIA Orin and DRIVE OS.

Now, let’s talk about the stock price. Shortly after NVIDIA’s earnings report, the stock dipped from its all-time high of $152 to today’s $138. This surprised many investors, especially since NVIDIA exceeded both EPS and revenue expectations by more than 5%.

This situation highlights an interesting dynamic: investors aren’t just looking for companies to beat expectations—they expect them to deliver results far beyond those benchmarks. This may explain why NVIDIA’s guidance for the next quarter is relatively modest. They’re forecasting $37.5 billion in revenue, reflecting a slowdown in growth compared to previous quarters, even though demand for their new chips exceeds supply.

One important point to consider is that NVIDIA’s revenue comes from costs incurred by its customers—many of which are major players in the tech industry. These companies will soon need to deliver AI-driven products and services to their customers. The big question is: will their end-users embrace it?

For instance, would you be willing to pay Google $1 per month for an AI assistant integrated into Gmail? In broader terms, will the cost of running AI within Apple, Amazon, Alphabet, and others’ ecosystems generate enough profit for those companies? This is the fundamental bet behind NVIDIA’s revenue growth. As investors, we’re not just betting on NVIDIA—we’re betting on its customers to make AI profitable for themselves.

This is why I’m particularly excited about the strong growth in NVIDIA’s automotive segment. I believe this is one market where AI could make a massive impact in the near future, followed closely by advancements in text, photo, and video manipulation. This also opens the company to a broader customer base, with the potential to impact the lives of nearly everyone on the planet. From self-driving cars to robotaxis, the transportation sector is a fundamental part of modern civilization and a key area where NVIDIA’s technology could drive significant change.

It’s clear that NVIDIA holds a near-monopoly over the AI market. However, some of their traditional customers, such as Apple and Amazon, are making significant efforts to train their own models and develop their own chips. These companies are investing heavily to reduce their reliance on NVIDIA’s AI dominance.

While their progress doesn’t yet compare to the market leader, it’s worth keeping in mind that there are capable players who will undoubtedly try to carve out a space in this market. Competition, after all, is inevitable in a field as transformative as AI.

As a long-time value investor, I’m approaching NVIDIA with patience, waiting for a more significant price correction. For now, I’m gradually increasing my position in small steps, keeping the majority of my cash reserved for an opportunity to buy at a larger discount—anything below $110, in my view.

Of course, this isn’t financial advice but simply an explanation of my current strategy. Everyone’s approach will depend on their unique goals and risk tolerance.

What are your thoughts on NVIDIA’s recent earnings and the dynamics of its stock price? Do you believe AI will become profitable for NVIDIA’s customers, or do you see potential challenges ahead? I’d love to hear your perspective—feel free to share your comments below!