Prediction: The Fourth Quarter Will Be Huge for Nvidia

The past several quarters already have been pretty successful for Nvidia (NASDAQ: NVDA). The company has built an artificial intelligence (AI) empire thanks to its strengths in the technology customers need to fuel AI projects. Nvidia's AI chips, or graphics processing units (GPUs), are the fastest around, and customers are flocking to the company for them -- even if they have to wait due to demand outstripping supply.

All this has resulted in triple-digit earnings growth quarter after quarter and stock price gains of 2,600% over the past five years. Momentum hasn't slowed this year, with the stock heading for a 185% increase.

Though Nvidia forecasts double-digit revenue growth for the third quarter, I don't see this as a slowdown. In fact, my prediction is the next period -- the fourth quarter -- will be huge for Nvidia. Let's find out why.

Image source: Getty Images.

A key transition into AI

First, a quick summary of the Nvidia story so far: The company has become almost synonymous with AI due to its dominance in the market, with sales to AI customers making up 87% of its total revenue. But this wasn't always the case. Nvidia started off mainly serving the video game market with its GPUs. It soon became clear, though, that these chips -- with the ability to process multiple tasks simultaneously -- could be valuable in many other areas.

Nvidia developed the parallel computing platform, CUDA, to make this happen, and progressively the company broadened its reach into other industries. And as the AI boom took hold, Nvidia's GPU found its next massive growth driver.

But Nvidia didn't stop with just the GPU, and instead expanded its AI offerings to include a wide range of products and services to make itself the one-stop shop for any AI project. Nvidia is "the on ramp" to the AI world, chief executive officer Jensen Huang said in a recent interview on podcast BG2Pod. And the company indeed has all the major AI market participants on board, counting companies such as Meta Platforms and Amazon as customers.

In fact, in recent times, Oracle co-founder Larry Ellison said he and Tesla chief Elon Musk took Huang out to dinner and "begged" for more GPUs.

So, it's clear Nvidia has a solid position in AI, a market set to grow from $200 billion today to $1 trillion by the end of the decade, and this has translated into an explosion in earnings and share performance in recent years.

Nvidia's revenue growth

Now, let's get back to my prediction. Even as Nvidia forecasts slower growth in the third quarter, why will the fourth quarter be so big for the company?

It's not yet clear if fourth-quarter revenue growth also will fall into the double-digit range, but even if it does, this shouldn't be viewed as weak performance. Nvidia's comparison periods have gotten tough, since revenue already has reached extremely high levels -- and this makes sustained triple-digit growth nearly impossible.

What should make the fourth quarter a standout one for Nvidia is the launch of its much-awaited new architecture, Blackwell, and the most powerful chip yet. Nvidia plans to ramp production in the quarter and even bring in billions of dollars in revenue during the period. So, the fourth quarter will represent the first quarter of Blackwell revenue.

Nvidia says demand for Blackwell has surpassed supply, which will continue into next year, showing that customers are flocking to the company for this new product. Meanwhile, demand for current architecture, Hopper, remains strong, so it too should significantly contribute to revenue in the last quarter of the fiscal year. (Customers continue to buy these "older" products, since Nvidia continues to update its entire platform so that all parts seamlessly work together.)

What does all this mean for investors?

Nvidia shares have soared, leaving them trading for 49x forward earnings estimates. While this isn't dirt cheap, it remains reasonable for an AI leader at this stage of its story. Nvidia, with the Blackwell launch on the horizon and a pledge to continue innovating on an annual basis, has room to run -- and my prediction is that the fourth quarter will be a big moment for Nvidia and may even launch this next wave of gains.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon, Oracle, and Tesla. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Nvidia, Oracle, and Tesla. The Motley Fool has a disclosure policy.