This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
If there's one company that has been at the epicenter of the artificial intelligence (AI) revolution, Nvidia (NASDAQ: NVDA) is it. The company's graphics processing units (GPUs) provide the computational horsepower that underpins the vast majority of AI processing and has been the biggest contributor to the accelerating adoption of this groundbreaking technology.
Being the poster child for AI can be a double-edged sword, however. In late January, reports suggested that Chinese start-up DeepSeek had developed a cutting-edge AI model with older-generation GPUs and for a much lower cost. Some Nvidia investors saw this as a harbinger of doom for the company, fearing that demand for its processors could come to a screeching halt.
The chipmaker delivered its financial report after the market close on Wednesday and the blockbuster results, combined with commentary from management, have largely put those fears to rest.
Let's take a look at the results, what it reveals about the future, and what CEO Jensen Huang said that every shareholder needs to hear.
By the numbers
Despite the misgivings, expectations were high heading into Nvidia's fiscal 2025 fourth quarter (ended Jan. 26), and the company delivered. Nvidia generated record revenue of $39.3 billion, up 78% year over year and 12% sequentially. This fueled adjusted earnings per share (EPS) of $0.89, which surged 71%.
For context, analysts' consensus estimates were calling for revenue of $38.16 billion and EPS of $0.85, so Nvidia cleared both hurdles with ease.
Driving the robust results was record data center demand, which continues to fuel its growth. Revenue from the segment -- which includes chips used for data centers, cloud computing, and AI -- soared 93% year over year to $35.6 billion, thanks to relentless demand for AI.
If there was one issue that was of potential concern to investors, it was likely the somewhat gradual decline in Nvidia's gross margin, which has persisted for several quarters. Gross margin edged lower to 73% in Q4, down from 76% in the prior-year quarter and 74.6% in Q3. CFO Colette Kress said this was "as expected," citing the rollout of its AI-centric Blackwell chip. She went on to say the company expects gross margin to improve later this year, returning to the "mid-70s."
Nvidia's cash stockpile also grew dramatically over the past year, with cash and marketable securities of $43.2 billion, an increase of 66%. Operating cash flow of $16.6 billion jumped 44%.
Concerns overblown
The biggest headline was the commentary provided by Jensen Huang during the call with analysts with respect to the release of DeepSeek late last month. While many investors hit the panic button, the chief executive explained that developments of this nature would increase demand for Nvidia's processors, not reduce it.
"DeepSeek-R1 has ignited global enthusiasm. It's an excellent innovation. But even more importantly, it has open-sourced a world-class reasoning AI model." He also uttered eight words that should be of particular interest to Nvidia shareholders: "Future reasoning models can consume much more compute." Put another way, the evolution and continuing adoption of AI will almost certainly boost demand for Nvidia's state-of-the-art AI chips.
To that end, management expects the company's growth spurt to continue. Nvidia is guiding for record first-quarter revenue of $43 billion, which would represent year-over-year growth of 65%. That was ahead of Wall Street's expectations of roughly $42 billion, but it seemed that investors could only manage a collective to yawn at the results.
If you still have doubts about Nvidia's future potential, consider this: The generative AI market alone could generate economic impact of between $2.6 trillion to $4.4 trillion in the coming years, according to global management consulting firm McKinsey & Company. As the leading provider of AI-centric chips, Nvidia is well-positioned to continue to benefit from this trend.
Despite its growth spurt over the past several years, the stock is still attractively priced, selling for roughly 28 times next year's expected earnings. That's a slight premium, but it's still an attractive price to pay for a company that's expected to increase both its revenue and EPS by more than 50% in its fiscal 2026.
For those reasons and more, I still believe Nvidia stock is a buy.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
