Demand for AI infrastructure has been a huge tailwind for the semiconductor company Nvidia (NASDAQ: NVDA). Its revenue and earnings have grown at a triple-digit pace over the past five quarters, and its stock price is up 910% since January 2023.

Nvidia will announce third-quarter financial results after the market closes on Wednesday, November 20. The stock has been exceptionally volatile following recent earnings events, which present investors with a tough choice: Is it smart to buy the stock now?

For what it’s worth, Wall Street is overwhelmingly bullish. Of the 65% of analysts following Nvidia, 92% rate the stock a buy and the remaining 8% rate it a hold ahead of the company’s third-quarter earnings report. No analysts currently recommend selling Nvidia.

Here’s what investors should know.

Nvidia has a sustainable competitive advantage in vertical integration

Nvidia specializes in accelerated computing. The company is known for it graphics processing units (GPUs)chips that are the industry standard for accelerating compute-intensive data center workloads such as artificial intelligence (AI). But Nvidia is truly formidable because it delivers vertically integrated computing solutions spanning hardware, software and services.

To elaborate, Nvidia has created a rich ecosystem of software development tools called CUDA. The platform includes more than 300 code libraries and 600 pre-trained models that enable programmers to write GPU-accelerated applications in use cases ranging from robotics to scientific simulation. The company also builds adjacent hardware for data centers, including central processing units (CPUs) and high-speed network equipment.

Nvidia is combining these products into an integrated AI service called DGX Cloud, which enables companies to deliver the supercomputing infrastructure and software development tools needed to build and manage AI applications over the Internet. Importantly, while GPUs are still the main source of revenue, software and services companies will reach an annual level revenue turnover rate of $2 billion this year, and its networking business has already reached an annual run rate of $14 billion.

According to CEO Jensen Huang, Nvidia’s vertically integrated approach to accelerated computing allows it to build systems with a higher total cost of ownership. In other words, Nvidia GPUs are not only the fastest AI chips on the market, but also the cheapest when taking into account direct and indirect costs. This gives the company a sustainable competitive ditch.

Image source: Getty Images.

What Wall Street Expects When Nvidia Reports Third Quarter Results

Nvidia beat estimates in the second quarter of fiscal 2025, which ended in July 2024. Revenue rose 122% to $30 billion and non-GAAP (non-generally accepted accounting principles) earnings rose 152% to $0.68 per diluted share. It marked the fifth consecutive quarter in which the company reported double-digit growth on the top and bottom lines.

This trend will likely end in the third quarter. Management provided guidance implying that revenue and non-GAAP earnings would grow 80%, though Wall Street set the bar slightly higher. Analysts expect Nvidia’s revenue to rise 81% to $32.9 billion and non-GAAP earnings to rise 85% to $0.74 per diluted share.

Importantly, even if Nvidia beats these numbers on Nov. 20, there’s no guarantee the stock will move higher on the news. Consider what happened last time. Nvidia beat estimates in the second quarter and provided stronger guidance than Wall Street anticipated, but the stock fell about 8 percent following the announcement.

Investors are no longer satisfied with modest earnings growth, but rather expect Nvidia to crush estimates. That attitude has led to significant post-earnings volatility over the past three quarters, with Nvidia’s share price moving an average of 10.7 percentage points after the company announced its results. Shareholders should be prepared for similar volatility this time around.

Nvidia stock is trading at a reasonable price compared to Wall Street’s earnings estimates

Susquehanna analyst Christopher Rolland recently wrote, “Nvidia has become the world’s de facto enabler of artificial intelligence.” And the company is likely to maintain its leading position in the near future. Even if a competitor builds a faster AI chip, it will still have a hard time dethroning Nvidia without a robust ecosystem of software development tools. Nvidia has a significant lead there. It has regularly added new tools to its CUDA platform for nearly two decades.

Looking ahead, Wall Street expects Nvidia’s adjusted earnings to grow 50% annually through fiscal 2026, which ends in January 2026. That consensus estimate makes the current valuation of 66.5 times adjusted earnings look reasonable.

Personally, I think Nvidia is a must-have stock given that it participates in so many areas of the AI ​​economy. And like most Wall Street analysts, I think patient investors should consider buying a small position today. If the stock pulls back after the company reports earnings, investors should consider building a slightly larger position at that time.

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Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.