Should You Invest in Nvidia Stock Following Its Exceptional Q4 Performance?

Investors now have clarity on how Nvidia (NASDAQ: NVDA) performed in the fourth quarter of 2024, and the results are once again encouraging.

Nvidia released its Q4 figures after market hours on Wednesday, showing a strong performance that surpassed Wall Street expectations. With such impressive results, you might be wondering: is it the right time to purchase Nvidia stock?

Analyzing Nvidia's Q4 Performance

Nvidia reported a revenue for Q4 of $39.33 billion, achieving a remarkable 78% growth year-over-year and increasing 12% from the previous quarter. This figure also exceeded the company's prior guidance of $37.5 billion as well as the average analyst estimate of $38.05 billion from LSEG.

On the earnings front, Nvidia reported adjusted earnings of $0.89 per share, marking a 71% increase compared to the same quarter last year and a 10% rise from Q3 of 2024. Analysts had predicted adjusted earnings of $0.84 per share.

A key highlight for Nvidia is its data center business, which saw revenues soar 93% year-over-year and 16% sequentially, reaching a record of $35.6 billion. This segment accounted for nearly 91% of the company’s total revenue.

However, there are some concerns. One issue is that the pace of growth is beginning to slow down. For instance, in Q3, Nvidia's revenue had jumped 94% year-over-year, and it had surged by 122% in Q2. Additionally, the company's gross margins dropped by 3% year-over-year in Q4, settling at 73%.

What Lies Ahead for Nvidia?

Despite the strong results, Nvidia's stock experienced a slight decline after the Q4 update. This may seem puzzling, but it highlights that investors are often more attentive to future projections than past achievements. Nvidia's outlook, while still optimistic, is not as impressive as some may have hoped.

For the first quarter of its fiscal 2026, the company's revenue guidance is projected at $43 billion, with a possible variance of 2%. This figure falls slightly short of the average analyst estimate of $43.37 billion. Moreover, it indicates further slowing in Nvidia's growth rate.

The company anticipates an adjusted gross margin of approximately 71%, with a variance of 50 basis points, continuing the downward trend seen over recent quarters.

Typically, investors would be thrilled with a company showing 65% revenue growth and robust gross margins over 70%. However, Nvidia's stock trades at nearly 31 times its forward earnings, leading to heightened expectations compared to many other firms.

Should You Buy Nvidia Stock Now?

Despite the concerns regarding Nvidia's slower growth and reduced margins, it may not be necessary to overreact. It’s unrealistic to expect Nvidia to maintain the extraordinary growth rates seen when generative AI first gained traction. The company’s margins could recover into the mid-70s once the rollout of its new Blackwell chips gains momentum.

Nvidia's CEO, Jensen Huang, mentioned during the Q4 earnings call that the computing power required for AI inference is already 100 times that needed for early large language models (LLMs). He stated, "This is just the beginning," indicating that future AI models might require computing power that could be thousands or even millions of times greater than what is currently needed.

I tend to agree with Huang's perspective. I anticipate that Nvidia will continue to lead in the AI chip market. If these assumptions hold true, growth-oriented investors might consider purchasing Nvidia stock now, as the company could enjoy numerous promising quarters in the future.

Note: Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, and has a disclosure policy.

Nvidia, Earnings, Stock