Nvidia's Q3 Growth Accelerates Amid Persistent Overvaluation and Risks

What happened

Nvidia's third-quarter revenue growth accelerated, driven by robust demand for its AI chips, as highlighted in recent financial reports. The company maintained an impressive gross profit margin in the mid-seventies, reflecting strong pricing power and operational efficiency. However, this performance occurs against a backdrop of elevated valuation, with the stock trading about 30% above intrinsic value estimates, embedding expectations for prolonged high growth. Key vulnerabilities include heavy reliance on TSMC for manufacturing and HBM suppliers, alongside regulatory pressures from export controls and antitrust scrutiny. These factors underscore the cyclical and policy-sensitive nature of the semiconductor business, tempering enthusiasm for near-term investment.

Implication

Nvidia's Q3 results validate its dominant position in AI accelerators but do not justify further multiple expansion, as the current valuation assumes near-perfect execution. Investors should remain wary of supply chain bottlenecks at TSMC and HBM vendors, which could disrupt shipments and compress margins if demand normalizes. Regulatory headwinds, including U.S.-China export rules and antitrust probes, pose material threats to revenue streams and market access. Competitive pressures from AMD and hyperscaler-designed chips may gradually erode NVIDIA's market share, challenging its premium pricing. Consequently, the 'WAIT' stance remains prudent, with entry points more attractive only after a significant price correction or clearer resolution of these risks.

Thesis delta

The Q3 earnings report confirms NVIDIA's execution strength but does not alleviate concerns over its overvaluation and heightened risk profile. This reinforces the existing 'WAIT' recommendation, as the stock's premium requires sustained perfection in growth and margins that may be unsustainable.