Nvidia shares will rise sharply in the fourth quarter

Has NVIDIA (NASDAQ: NVDA) Are there finally no more surprises in terms of winnings?

The rising AI chip superstar appeared to run out of steam in its second-quarter fiscal 2025 earnings report released on August 28. While the company beat revenue and profit forecasts, the margins were smaller than investors are used to and the forecasts were also less impressive than some had hoped.

In addition, the company reported the first sequential decline in gross margin since demand for its graphics processing units (GPUs) surged following the launch of OpenAI's ChatGPT, a sign that the chipmaker's profitability has peaked.

Since then, Nvidia has continued to cave, conceding on Tuesday after the Justice Department sent it a subpoena as part of an antitrust investigation. The company later said it had not received a subpoena.

Nevertheless, at the close of trading on September 6, the share price was 18 percent below the level before the earnings report was published.

This presents investors with a potential buying opportunity, as the stock is currently at its cheapest (on a valuation basis) since the beginning of the AI ​​boom, trading at a price-to-earnings ratio of 49.

For investors considering buying Nvidia on dips, the AI ​​stock is well positioned to recoup its recent fourth-quarter losses and move higher. Let's look at some reasons why.

1. Blackwell’s launch could be huge

The launch of Nvidia's new Blackwell platform has been highly anticipated since the company announced it at its GTC conference in March.

The new GPU ecosystem has been delayed by about three months due to a design flaw, but is expected to be ready in the fourth quarter. According to Nvidia, Blackwell is capable of running generative AI programs and huge language models at up to 25 times lower cost and power requirements than the previous Hopper model. This could be a game changer for the AI ​​industry across the numerous companies that rely on Nvidia GPUs.

CFO Colette Kress told investors on the recent conference call: “Demand for Blackwell platforms significantly exceeds supply and we expect this to continue into next year.”

The launch of the platform is expected to boost the company's growth and margins, and a successful launch is also expected to boost the share price.

Investors will be closely watching management's guidance when the company reports its third-quarter results in November for signs of Blackwell's influence.

2. Falling interest rates should provide tailwind

The Fed is expected to cut interest rates at its meeting later this month. Rate cuts should provide gains for Nvidia and much of the stock market. Lower rates will lead to more consumer spending and business investment and also tend to favor growth stocks like Nvidia.

The story continues

There was already evidence of this: Nvidia shares rose 4.5 percent on August 23 after Fed Chairman Jerome Powell indicated that it was time for the central bank to start cutting interest rates.

Assuming interest rates fall as quickly or even faster than expected, Nvidia will likely benefit.

3. Infrastructure spending will continue to rise

Much of Nvidia’s demand comes from cloud infrastructure giants such as Microsoft, alphabet, Meta-platformsAnd Amazonand these companies are expected to continue to increase their purchases of Nvidia components as they expand their AI capabilities.

Top tech CEOs like Mark Zuckerberg of Meta and TeslaElon Musk has stressed the importance of staying ahead in the AI ​​race, as falling behind could have far more serious consequences than overspending on AI hardware.

In addition, the fourth quarter tends to be a strong quarter in the technology industry, particularly in cloud software and infrastructure, and solid demand there should support further spending on Nvidia products.

After the drop following its second-quarter report, Nvidia is now benefiting from lower expectations and a more attractive share price. If the company executes well on its Blackwell rollout and the macroeconomic environment provides a rebound, it could head back toward its previous highs in the fourth quarter and beyond.

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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. 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 of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions at Amazon and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Forecast: Nvidia Stock Will Soar in Q4 was originally published by The Motley Fool