While some investors view earnings reports as boring events, that sentiment changes if the company’s reports have a big influence on market direction. Currently, it could be argued that artificial intelligence (AI) is the most influential theme in the market. So when the AI ​​leader releases a report, investors should pay attention.

Nvidia (NASDAQ:NVDA) is the undisputed leader in AI investing. Its graphics processing units (GPUs) are the computing power behind almost every innovative AI model under development, and it has benefited significantly from this trend.

Nvidia reports its third quarter fiscal 2025 results on November 20, making it a huge day for the market and the stock. However, stocks have been known to move up or down significantly after earnings releases, so investors want to know: “Is Nvidia a buy before November 20?”

Revenue growth is a key metric for Nvidia

Stocks fall or rise after earnings releases because the information investors receive is just some of the looks we get at a company each year. Waiting a full quarter to hear an update from a giant like Nvidia is a long time, because the landscape changes so much over that time.

However, the variation between the second and third trimester will no longer be as large as before.

During the third quarter of last year’s fiscal 2024 (ending October 29, 2023), Nvidia’s revenue grew an incredible 206% year over year. This year, it is expected to post revenue growth of 80%. While this is a huge downturn, the 80% revenue growth is still impressive, especially considering Nvidia’s size.

When a company is growing as quickly as Nvidia, it’s best to look at quarter-over-quarter revenue growth, as long as the company doesn’t exhibit seasonality (revenue rises and falls with the seasons). , such as a ski resort or ski resort). water park can see). Nvidia doesn’t have this problem and for the third quarter of fiscal 2025, it expects 8.3% quarter-over-quarter revenue growth. This figure will be one to watch, as a miss on this figure will show that demand is not growing as quickly as it was a few months ago. But while the results are better, it is clear that companies continue to increase their spending on AI.

I think it’s more likely than not that Nvidia will beat that number, as we’ve heard from other big tech companies on their conference calls that calendar year 2025 will be a year of increased infrastructure spending. ‘AI. Although some of this spending will be on custom chips developed by these companies, a large portion will be for Nvidia, paving the way for a big quarter, at least in terms of revenue.

On the margin side, it could be a different story.

Nvidia must maintain its margins to justify its price

Part of Nvidia’s progress is getting lost in a mix of unreal revenue growth: margin expansion. With Nvidia GPUs in high demand, their margins have increased significantly from historical levels.

NVDA profit margin (quarterly) data by Y Charts

While Nvidia’s revenue growth has been impressive, its profit growth has been even more spectacular.

NVDA turnover (quarterly growth over one year) data by Y Charts

This effect occurred because Nvidia’s margins increased alongside revenue growth, but if you look closely at the first chart, you can see that Nvidia’s margins started to decline ever so slightly. This decline could have been just a slight bump in the road, but investors should be careful if this is a larger trend.

Nvidia’s stock is already highly valued and it needs to maintain earnings levels to justify its 66x trailing earnings and Forecast earnings valuation 49 times higher. If it can maintain this trend or at least see a very slight decline, that should set Nvidia in the clear, at least until after this earnings report.

So, should you buy Nvidia stock before it reports earnings? It depends. If you think the company will maintain its margins and beat its revenue growth forecasts, it’s likely the stock will explode post-earnings. However, given the valuation Nvidia is trading at, it needs to beat expectations across the board to rise post-earnings. That’s why I’ll just watch the report, and if an opportunity presents itself (even though, historically, waiting has been a bad strategy), I can take a stand.

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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool Ranks and Recommends Nvidia. The Motley Fool has a disclosure policy.