Nvidia (NVDA)

Leading designer of graphics chips Nvidia (NASDAQ:NVDA) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 62.5% year on year to $57.01 billion. On top of that, next quarter’s revenue guidance ($65 billion at the midpoint) was surprisingly good and 4.2% above what analysts were expecting. Its non-GAAP profit of $1.30 per share was 3.8% above analysts’ consensus estimates.

Company Overview

Founded in 1993 by Jensen Huang and two former Sun Microsystems engineers, Nvidia (NASDAQ:NVDA) is a leading fabless designer of chips used in gaming, PCs, data centers, automotive, and a variety of end markets.

Chips need to keep getting smaller in order to advance on Moore’s law, and that is proving increasingly more complicated and expensive to achieve with time. That has caused most digital chip makers to become “fabless” designers, rather than manufacturers, instead relying on contracted foundries like TSMC to manufacture their designs. This has benefitted the digital chip makers’ free cash flow margins, as exiting the manufacturing business has removed large cash expenses from their business models. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. Digital chips derive their processing power from the number of transistors that can be packed on an individual chip. In chip design, nanometers or “nm” refers to the length of a transistor gate – the smaller the gate the more processing power that can be packed into a given space. In 1965, Intel’s founder Gordon Moore famously predicted a doubling of transistors on a chip every two years. The concept, known as Moore’s Law, was based on his belief that the technology used to create semiconductors would improve continuously, allowing chips to become ever smaller and ever more powerful.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Nvidia’s sales grew at an incredible 66.2% compounded annual growth rate over the last five years. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers, a great starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Nvidia’s annualized revenue growth of 104% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Nvidia reported magnificent year-on-year revenue growth of 62.5%, and its $57.01 billion of revenue beat Wall Street’s estimates by 2.8%. Beyond the beat, this marks 10 straight quarters of growth, showing that the current upcycle has had a good run - a typical upcycle usually lasts 8-10 quarters. Company management is currently guiding for a 65.3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 49.1% over the next 12 months, a deceleration versus the last two years. Still, this projection is eye-popping given its scale and suggests the market is forecasting success for its products and services.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Nvidia’s DIO came in at 119, which is 13 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Nvidia’s gross margin is one of the best in the semiconductor sector, and its differentiated products give it strong pricing power. As you can see below, it averaged an elite 72.2% gross margin over the last two years. Said differently, roughly $72.24 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

In Q3, Nvidia produced a 73.4% gross profit margin, down 1.1 percentage points year on year. Nvidia’s full-year margin has also been trending down over the past 12 months, decreasing by 5.8 percentage points. If this move continues, it could suggest a more competitive environment with pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Nvidia has been a well-oiled machine over the last two years. It demonstrated elite profitability for a semiconductor business, boasting an average operating margin of 60.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Nvidia’s operating margin rose by 23.5 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q3, Nvidia generated an operating margin profit margin of 63.2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Nvidia’s EPS grew at an astounding 79.1% compounded annual growth rate over the last five years, higher than its 66.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Nvidia’s earnings to better understand the drivers of its performance. As we mentioned earlier, Nvidia’s operating margin was flat this quarter but expanded by 23.5 percentage points over the last five years. On top of that, its share count shrank by 2.8%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q3, Nvidia reported adjusted EPS of $1.30, up from $0.81 in the same quarter last year. This print beat analysts’ estimates by 3.8%. Over the next 12 months, Wall Street expects Nvidia’s full-year EPS of $4.05 to grow 57.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Nvidia has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 44.6% over the last two years.

Taking a step back, we can see that Nvidia’s margin expanded by 11.8 percentage points over the last five years. This is encouraging because it gives the company more optionality.

Nvidia’s free cash flow clocked in at $22.09 billion in Q3, equivalent to a 38.7% margin. The company’s cash profitability regressed as it was 9.2 percentage points lower than in the same quarter last year, but we wouldn’t read too much into it because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, leading to quarter-to-quarter swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Nvidia’s five-year average ROIC was 52.5%, placing it among the best semiconductor companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

Big corporations like Nvidia are attractive to many investors in times of instability thanks to their fortress balance sheets that buffer pockets of soft demand.

Nvidia has an eye-popping $60.61 billion of cash on its balance sheet (that’s no typo) compared to $10.48 billion of debt. This $50.13 billion net cash position is 1.1% of its market cap and shockingly larger than the value of most public companies, giving it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was great to see Nvidia’s revenue guidance for next quarter top analysts’ expectations. We were also glad its adjusted operating income outperformed Wall Street’s estimates. On the other hand, its inventory levels materially increased. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 2.3% to $191.20 immediately following the results.

Updated: December 4, 2025 at 9:26 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Nvidia, you should also grasp the company’s longer-term business quality and valuation.

There is a lot to like about Nvidia. For starters, its revenue growth was exceptional over the last five years. On top of that, its admirable gross margins indicate robust pricing power, and its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Nvidia’s P/E ratio based on the next 12 months is 25.9x. Scanning the semiconductor landscape today, Nvidia’s fundamentals clearly illustrate that it’s an elite business, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $250.66 on the company (compared to the current share price of $183.30), implying they see 36.8% upside in buying Nvidia in the short term.