This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Nvidia stock surges after delivering yet another record quarter.
- Nvidia is on its way to becoming the most profitable company in the world.
- Nvidia’s sustained momentum depends on a handful of key customers.
Nvidia (NASDAQ: NVDA) rocketed as much as 6.5% higher in after-hours trading on Nov. 19 after reporting third-quarter fiscal 2026 results and issuing fourth-quarter guidance.
While some investors may have been focused on the revenue and earnings per share (EPS) beats, the most jaw-dropping number of the report was hiding in plain sight.
Here's what blew me away about Nvidia's recent quarter, and why the artificial intelligence (AI) growth stock remains a great buy now.
Nvidia's revenue growth is mostly profit
Nvidia grew revenue by $21.92 billion compared to the same quarter last year, but the cost of revenue grew by just $6.23 billion, and operating expenses only grew by $1.17 billion. This means that Nvidia is converting the bulk of additional revenue into operating income.
Despite fears that Nvidia's margins would compress due to competition and increased research and development spending, Nvidia's operating margin was actually higher this quarter than in Q3 of fiscal 2025. More importantly, Nvidia converted a staggering 56% of revenue into after-tax net income.
With $31.91 billion in net income generated in the quarter, Nvidia will likely eclipse Alphabet within the next year as the most profitable U.S. company -- and probably the most profitable company in the world unless oil prices, and, in turn, Saudi Aramco's profits surge.
Nvidia is thriving, but risks remain
Nvidia gets a lot of attention for its stock price, but the performance of the business is what long-term investors should continue to focus on.
There's simply no company in the world remotely close to Nvidia's size that is growing earnings this quickly. The combination of industry leadership, high margins, and technology at the epicenter of AI data centers makes Nvidia a compelling long-term investment.
As for the valuation, Nvidia is priced as if it is going to continue growing earnings by double digits quarter over quarter. For that to happen, its key customers -- the hyperscalers building out data centers and training AI models -- need to keep spending. These hyperscalers must continue to generate strong cloud computing growth from key customers across various sectors. But to do that, compute and AI spending need to be profitable for cloud customers. The whole value chain breaks if end user spending isn't paying off.
As excellent as Nvidia's results are, it would be a mistake to overlook the double-edged sword that Nvidia holds as the undisputed leader in data center computing and networking. Nvidia is the single biggest beneficiary of increased AI capital, but it would also be one of the hardest-hit companies during a critical slowdown.
Fortunately for long-term investors, Nvidia has $60.61 billion in cash, cash equivalents, and marketable securities on its balance sheet, compared to just $7.47 billion in long-term debt. Paired with its ultra-high margins, Nvidia is undoubtedly the best-positioned AI company to ride out a slowdown.
Nvidia is still a buy
Nvidia is the poster child of today's top-heavy, premium-priced market. What separates Nvidia is that the stock's run-up is supported by solid fundamentals, whereas other pockets of the market have valuations that are arguably overextended.
All told, Nvidia is still a good buy for investors who believe in a sustained ramp-up in hyperscaler AI capital expenditures.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
