Nvidia shares pulled back Thursday after the initial post-earnings rally.
Nvidia reported third quarter earnings and blew past expectations on both revenue and profit.
Now the company posted earnings of $130 on a share, on more than $57 billion in revenue, well above Wall Street's forecasts.
Now looking ahead, the company projects 4th quarter revenue of about. $65 billion also topping estimates.
Shares jumped more than 4% following the news, and in New York Morning Trade, we are looking at shares hovering right below the 178 level.
Now.
The data center business for Nvidia, its AI engine, delivered over $51 billion again beating expectations while gaming came in just short.
The report follows Nvidia's. briefly crossing $5 trillion last month.
Well joining me on this Friday morning is Melissa Otto, head of Visible Alpha Research at S&P Global Market Intelligence.
Happy Friday, Melissa.
Thank you so much for joining us.
So Nvidia earnings are in the rearview mirrors.
So give us your take on the earnings right now and what the price action is telling you in terms of stock price.
Hey Remy, it's great to be here.
Thanks for having me on.
Yeah, and it was an interesting one.
It zoomed up after hours and then it gave it all back in trading during the trading day, you know, I think.
Our, you know, what we saw in the numbers based on visible alpha consensus, the Q3 was a beat on the top and bottom line, and Q4 guidance for revenues came in $2 billion ahead of visible alpha consensus, but I think what we didn't really get was much clarity about what the margin might look like for the data center business for Q4 or next year.
And this may have created a little bit of uncertainty around what the profitability of some of this new next generation chips may be for Blackwell and for Ruben.
So I think, you know, it may have created a little bit of concern in the market around what 2026 may start to look like.
Yeah, and building on what you just said, Melissa, what are you watching for around the next Blackwell as well as Ruben updates?
Absolutely we want to see what the profitability of these is going to look like.
These invisible Alpha Consensus 2026 is expecting a 76.3% gross margin for data centers for the data center segment, but this is coming off of.
This year is expected 74%, so the market is essentially expecting over 200 basis points of margin expansion to come through next year, and we really haven't received much clarity from the company about what the trajectory of margins is going to look like for Blackwell and Ruben.
Yeah, and as you mentioned, data center gross margins expected to hit the mid 70s.
So the question is around sustainability.
So how sustainable are those levels, especially as competition grows and customers face rising AI build out costs?
Well, based on Jensen's commentary, both the GTC in Washington DC and in the quarter, it seems like they're quite sustainable for a while.
So the demand is there and it seems that they have visibility around the revenues.
The question is going to be how profitable are those revenues going to be.
And Melissa, while I have you here, I do want to ask you a question about Nvidia's valuation.
And there are a wide range of earnings estimates for next year, consensus of about 7 is sure to even whisper numbers of between 8 and 10.
So where do you think valuation ultimately settles?
It's unclear because it it it'll be interesting to see if we have the company as we come through Q4, it'll be interesting to see what the margin may start to shake out and look like for the data center business if it.
Is in the ballpark of that 76% level, then I think you know the $7 a share is is probably within the range.
If it's if it comes in north of that, that would be seen as a potentially positive signal for some upside to that $7 a share.
But then it, you know, if we see it come in flat or in line with what.
This year's at this year's 74% level, then it, it, it may be a different story.
And finally, Melissa, before I let you go, with nearly $400 billion in expected AIAX this year, are we at risk of overbuilding the industry or is Nvidia proving that this level of investment is justified?
It's hard to say actually what is the total addressable market for this?
Yeah, I, I don't think the market has a very clear idea about what the right parameters and metrics are to measure what exactly.
Is the right amount of build right now it just feels very much like an arms race as the cloud service providers are just going full gusto after the corpus in order to to really try to.
Solidify their positions in this whole AI ecosystem.
And Melissa, finally, I'm just looking at the PE ratio for Nvidia and right now it stands right below 45.
So what do you expect to see as we head into 2026?
It'll be interesting to see, you know, I think based on what the company is saying, it very much feels like revenues are going to continue to See some potential up upward revisions.
I'm watching that.
Those data points very carefully.
You know, I think we'll probably start to really see them come into the mix over The next earnings cycle in particular, you know, I think probably start to see some of it coming in through December.
But then I think we really need to understand what is going to be the profitability of all of this and how is it going to drive earnings growth.
The market would like and need a little bit more clarity and transparency around that, so hopefully we get that in the Q4 and we'll have much more visibility around what that trajectory should look like, and that should give us some conviction around the valuation as we look at the rest of 2026 as well as into 2027.
Well, Melissa, we will have to leave it there for today, but as always, thank you so much for joining us and thank you for sharing all of your insights.
Thanks, Remy.
Great to be here.
