Nvidia beat and raise should wow its critics, and the stock soars

Nvidia reported better-than-expected quarterly results on Wednesday evening, with guidance that will impress even the most bullish. The company's revenue in the third quarter of fiscal 2026 rose 62% from a year earlier to $57.01 billion, beating the $54.92 billion the Street was looking for, according to estimates compiled by data provider LSEG. Adjusted earnings per share rose 67% to $1.30 for the three months ended Oct. 26; That beat the consensus estimate of $1.25, according to LSEG data. NVDA YTD mountain Let's talk about a strong showing from Nvidia YTD. In addition to solid breakthroughs at the top and bottom lines, management guided current quarter sales to not only beat consensus estimates but also above the so-called whisper figure floating around. For those unfamiliar with the term, the forecasts cited by most market watchers and participants like Club come from sources like LSEG, FactSet or Bloomberg, which are all market data platforms. These forecasts are compiled from sales analysts working at banks and research selling firms. But the whisper trick is believed to be what the buy side (those who manage the money, such as hedge funds, asset management firms, pension funds, etc.) are looking for. Sometimes the fact that a stock may beat the consensus estimate and miss the whisper figure can cause the stock to move lower. However, surpassing the whisper figure is a significant achievement because it means the company is doing better than those who manage the money and risk it on the company's behalf; This is an expected upward sign. Nvidia shares rose 5% to $196 in after-hours trading; This is a step in the right direction towards its record close of $207 on October 29 and a market cap of $5 trillion. We reiterate our hold-equivalent 2 rating but raise our Nvidia price target to $230 per share from $225. As a result, management not only has visibility into 100% of the revenue the Street is modeling for next year, but also appears to have noted on the call that the $500 billion figure CEO Jensen Huang touted in October is already growing. Helping fuel growth, Huang explained that the world is currently going through three simultaneous computing transitions. First, Huang said, there is a shift from CPU-based general computing to GPU-based accelerated computing. (CPUs are central processing units that have long been viewed as the brains and workhouses of traditional computers. GPUs are graphics processing units that have become the heart and soul of AI workloads because they can complete many calculations simultaneously. This parallel processing is a key advantage over CPUs.) Second, he said, AI is at an “inflection point,” transforming existing applications and enabling new ones. "For existing applications, generative AI is replacing classical machine learning in search ranking, recommendation systems, ad targeting, click prediction, and content moderation. The foundations of hyperscale infrastructure." The third are so-called agent AI systems that are “capable of reasoning, planning, and using tools.” (Agentic AI is a type of system that can complete tasks without human supervision; for example, it can book a flight for a user instead of just searching for it.) Why we have it Nvidia's high-performance graphics processing units (GPUs) are the key driving force behind the artificial intelligence revolution that's powering the accelerated data centers being rapidly built around the world. But Nvidia is much more than a hardware story. Nvidia is developing its software business through its Nvidia AI Enterprise service. Competitors: Advanced Micro Devices and Intel Last purchase: August 31, 2022 Started: March 2019 At the center of it all is Nvidia. "Consider these three key dynamics when evaluating infrastructure investments. Each will contribute to the growth of infrastructure in the coming years. Nvidia was chosen because our singular architecture enables all three transitions, and is therefore the single architecture for all forms and methods of AI across all industries, at every stage of AI, across all different computing needs in the cloud, as well as across all forms and methods of AI, from cloud to enterprise to robotics," Huang said. Commentary Heading into the earnings report, we've highlighted five questions posed by Melius Research's Ben Reitzes that we hope Huang will answer. Four of these were answered by the CEO and other company executives. Reitzes' first question was whether the increase in capital spending could continue through the end of the decade. While time will tell, we said it will largely depend on end-market demand, which in turn will depend on Nvidia customers' ability to monetize the spend. When it comes to demand, Huang got straight to the point on the earnings call, saying "Blackwell sales are off the charts and cloud GPUs have sold out," adding that "computing demand continues to accelerate and converge across training and inference, each growing exponentially." (Blackwell is Nvidia's current chip platform) Another question Reitzes asked was: What will Nvidia do with all this free cash flow? Although the company returned $37 billion to shareholders through dividends and buybacks during its third fiscal quarter this year, it's clear that buybacks are still ongoing, as it exited the quarter with $62.2 billion in stock repurchase authority remaining. During the call, Huang said that in addition to ongoing buybacks, the cash will be used to finance further growth and make strategic investments. Nvidia has been on a tear, making "strategic investment" after "strategic investment", from committing to a $100 billion multi-year investment and partnering with ChatGPT creator OpenAI to taking stakes in rival Claude creator Anthropic, Intel and neocloud provider CoreWeave. Reitzes' third question concerned the need for clarity on the $500 billion in orders for Blackwell and next-generation Rubin that Huang mentioned at the company's GTC conference last month. “We currently have visibility of half a trillion dollars in Blackwell and Rubin revenue from the beginning of this year through the end of calendar year 2026,” CFO Colette Kress said during the call. Now, Nvidia's fiscal year is a bit behind us; It's almost a year and it ends in January. But if we assume Nvidia does $212.8 billion in the current fiscal year 2026 ($65 billion from current quarter guidance in addition to what's been reported so far), that leaves just over $287 billion to be realized through most of fiscal 2027, which again extends about a month into the end of calendar year 2026. Sales sought by Wall Street; There's still time to generate even more orders as corporate, consumer, and perhaps most excitingly, sovereignty adoption increases. In fact, based on comments on the call, it appears that announcements have already been made for new orders not included in the $500 billion figure; Kress says the announced deal with the Kingdom of Saudi Arabia for 400,000 to 600,000 more GPUs over three years is new, as is the recently announced deal with Anthropic. “So we certainly have the opportunity to have more than the $500 billion that we announced,” Kress said. As for Reitzes' question about margins, margins will clearly continue in the short term, with management guiding the current quarter to be above expectations. “As we look to fiscal 2027, input costs are increasing, but we are working to keep gross margins in the mid-70s,” Kress said. That's exactly what Steet was looking for. Reitzes' only question, which Huang did not elaborate on, was about the CEO's comments to the Financial Times earlier this month that "China will win the AI race." At the time, Huang softened that language, saying "China is nanoseconds behind America in artificial intelligence," adding that it was vital for the United States to win by "racing forward." Although this specific investigative topic was not mentioned in the call, Huang said: "While we are disappointed in the current situation that prevents us from shipping more competitive data center computing products to China, we are committed to maintaining relations with the U.S. and Chinese governments and will continue to defend America's ability to compete around the world." Nvidia has been saying for some time that its forward guidance includes zero sales from China. Segment results Data center, the largest of Nvidia's five operating segments, achieved a better-than-expected 66% year-over-year increase to $51.22 billion in the third quarter of fiscal 2026, and a stunning 25% sequential revenue growth. In the data center unit, computing revenue increased 56% to $43 billion, and network revenue increased 162% to $8.2 billion. The game saw revenues rise 30% to $4.27 billion, but missed estimates of $4.41 billion. Professional Visualization revenue increased 56%, driven by growth in sales of the company's recently launched DGX Spark and Blackwell, a Grace Blackwell-based AI supercomputer small enough to fit on your desk. “Professional visualization, whether it is graphics or artificial intelligence, has evolved into computers for engineers and developers,” Kress said during the call. Automotive revenue increased 32% year over year as the industry continued to embrace Nvidia's autonomous solutions. However, this figure was below expectations. OEM and Other segment revenue increased by 79%. This unit at Nvidia covers partnerships with original equipment manufacturers, licensing, and other things not taken into account in other segments. Looking ahead to the fourth quarter of fiscal 2026, management's outlook was largely better than expected. Revenue of $65 billion, plus or minus 2%, was above not only the LSEG consensus estimate of $61.66 billion, but also the $64 billion whisper figure circulating on Wall Street before launch. Adjusted gross margins are expected to be 75% plus or minus 50 basis points, better than the 74.1% forecast compiled by FactSet. Adjusted operating expenses of $5 billion in the fiscal fourth quarter are about in line with expectations. (Jim Cramer's Charitable Trust is long NVDA. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation's portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing the trading alert before executing the trade. 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