This week marks a big moment for tech investors as perhaps the most anticipated earnings of the year will be released: Nvidia(NASDAQ: NVDA) will announce its Q3 numbers on Wednesday, Nov. 20.
The artificial intelligence (AI) titan powering a market boom has a lot of questions to answer. How is it dealing with the recent issues at one of its key suppliers? Is the release of its newest Blackwell chip going according to plan?
We'll learn more on Wednesday, but there are plenty of reasons to buy Nvidia's stock ahead of time. While there's always a chance something disappointing could be revealed, Nvidia currently appears to be in too strong a position to meaningfully change its trajectory over the long term. Here are three reasons why Nvidia's stock is a buy today.
1. Blackwell looks big
We'll learn more about Blackwell's release, but all signs point to a successful rollout of Nvidia's newest iteration chips. There was a hiccup earlier this year when reports of fabrication issues spooked investors. It's now clear that Nvidia handled the issue swiftly, and what could have been a significant delay was only a month or two. Blackwell is set to be delivered to customers shortly.
The chips are a significant upgrade to the already uber-powerful Hopper chips, which still appear to be selling extremely well despite the imminent release of their successors. Elon Musk and his xAI team bought 100,000 Hopper chips just a few months ago and are in the process of purchasing another 50,000.
It's a great position to be in when the demand for current and future iterations is at a fever pitch. It's been reported that Nvidia is sold out of Blackwell for at least 12 months following its release.
Nvidia CEO Jensen Huang described the demand as "insane." The company is partnering with Foxconn in order to meet that demand, opening a new Blackwell-specific fabrication plant in Mexico.
2. Big Tech is still spending huge amounts
Taking a look at recent big-tech earnings calls from Nvidia's top customers, it's clear the money is still flowing. Tech giants like Microsoft, Meta, and Alphabet are spending billions building data centers that can handle the demands of AI. The capital expenditure (capex) of these companies rose sharply over the last year, with much of it flowing into Nvidia's coffers. The trend will likely continue.
Meta aims to significantly boost its 2025 capital expenditure, with CEO Mark Zuckerberg emphasizing the potential for a substantial return on investment (ROI) from AI advancements and even suggesting that capex needs to grow further. Alphabet spent $13 billion last quarter building data centers and expects the same in Q4, putting it on track to top $50 billion in capex for the year.
3. Nvidia has massive free cash flow
Free cash flow (FCF) is a critical measure of a company's financial health, and Nvidia has a lot of it. Look at the explosion in FCF over the last few years compared to its rival AMD.
Nvidia Free Cash Flow data by YCharts.
That is a major divergence. FCF can be used for all sorts of things that either boost a company's ability to do business or enrich its shareholders, often both. It gives Nvidia immense resources to respond quickly and effectively to the market and critically defend its market dominance. As AMD and others try to keep pace, Nvidia can deploy this capital to outspend its competition significantly on, say, more R&D or poaching talent.
At the same time, FCF can be used to repurchase shares, and that's exactly what Nvidia has been doing. Over the course of the first half of the year, it repurchased $15.1 billion in stock, and last quarter, announced the board had approved $50 billion in additional stock buybacks.
On Wednesday, we'll see just how much of the $50 billion they've used. It's clear, however, that the company is committed to doing its part to reward its shareholders.
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Suzanne Frey, an executive at Alphabet, 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. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
