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DeepSeek R1: Implications for Microsoft

By: Melissa Otto, CFA

DeepSeek: Why is R1 a Big Deal Going Forward?

The biggest obstacle to the broad adoption of AI by the masses has been a lack of innovation at the application layer. To deliver a quality experience to users, AI applications have been projected to cost over $100 million to deliver accurate output for their intended use case. There have not been many new AI applications embedded into our personal and professional daily lives, due to the expense of training these specialized models, especially within enterprises. In addition, cheaper models often lack accuracy and may create issues around privacy and security. This dynamic has put organizations between a rock and hard place. On one hand organizations need to spend to drive AI innovation but may be forced to abandon a project because the training and inferencing costs run too high. To complicate matters, an organization will also need to identify when a tool is ‘good enough’, even if it lacks perfect accuracy and occasionally hallucinates.

DeepSeek, a Chinese AI company based in Hangzhou, released R1, their latest model. The most surprising aspect of the DeepSeek update was the combination of the V3 low cost with the now higher level of accuracy. As shown in Figure 2, DeepSeek’s results now rival OpenAI in key categories, however, at a lower cost and in a lower chip environment. According to the DeepSeek V3 paper, it was built for a mere $5.6 million. There is one significant caveat. R1 was built on top of a base model. DeepSeek did not build the base model, which would have cost substantially more. However, it is generating impressive accuracy for reasoning at cost below peers, like OpenAI

Training Cost of DeepSeek V3

Training Costs of DeepSeek-V3, Assuming the Rental Price of H800 is $2 Per GPU Hour

Table 1 3

Source: DeepSeek V3 Technical Report, 2412.19437v1, December 27, 2024.

Benchmark Performance of DeepSeek R1 

Given the enormous amounts of capex committed by the cloud service providers and AI infrastructure providers to transform datacenters to accelerated computing with GPUs and other solutions, DeepSeek’s potential to dramatically reduce the cost of training may have significant implications for the industry’s outlook and expected growth. The low cost and accuracy of the DeepSeek reasoning model may drop the cost in certain areas and lead AI applications to emerge faster.

Another area that may benefit from the DeepSeek reasoning model is at the edge in laptops. Many individuals and enterprises have not updated their laptops since the COVID era. Given the cost, speed and security benefits at the edge, AI laptops may start an upgrade cycle. In addition, we may begin to see the development of more AI applications with lower cost models that could also support demand for new AI laptops.

DeepSeek at the Microsoft AI Tour

At the Microsoft AI Tour last week, Scott Guthrie, executive vice president of the Microsoft Cloud and AI Group, gave the keynote on AI transformation. He walked through several examples and had a few customers describe their AI stories. Guthrie emphasized the role of Copilot devices in how the business landscape is changing, especially for improving business processes and customer engagement.

Guthrie explained that AI laptops will enable more intelligent search and become increasingly important to IT management. Embedding AI into the operations of an enterprise may facilitate more efficiency and productivity within an organization. For example, the use cases for AI may include suggestions for code solutions, ways to save time, faster business processes, less manual documentation and approaches for curating customer requests. Guthrie highlighted the agentic programming model and the role of agents in helping to facilitate these process improvements and use cases.

Microsoft AI Tour Keynote with Scott Guthrie
Image 2

Source: Microsoft AI Tour, January 30, 2025.

Guthrie also addressed DeepSeek and showed the audience where to find DeepSeek R1 in Azure’s model catalog. Based on the productivity and efficiency use cases for enterprises, DeepSeek’s R1 may be useful for code generation, debugging and automating chatbot responses to customers and internal users, which may streamline the develop process and reduce time to production. When these enhancements are brought to device, the combination of running a chatbot at the edge with R1 may enable frontier models, like DeepSeek R1, to help bring the cost of developing and implementing an AI use case down. It also may be setting the stage for more AI applications to move to production and facilitate broader adoption.

Scott Guthrie Showing DeepSeek R1 on Azure
Image 3

Source: Microsoft AI Tour, January 30, 2025

The Bottom Line

The potential for AI developers to create the next generation of must-have applications at scale has only just started. With frontier models, like DeepSeek R1, the costs are coming down and the accuracy is improving, which may be setting the stage for more AI applications to move to production. Over the next 4-5 years, there will likely be significant expansion and development of AI services in data centers and devices to ready the world for what’s to come next. Both workplaces and consumers are likely to win in the end with enhanced efficiency and productivity.  Like it or not, AI is off and running.

Microsoft Copilot
Image 4

Source: Microsoft Build (May 21, 2024)

 
Microsoft Consensus Estimates 
Table 2

Source: Visible Alpha (February 4, 2025)

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Alphabet & Amazon Earnings Previews: Fiscal Q4 2024

By: Melissa Otto, CFA

Alphabet (NASDAQ: GOOGL) & Amazon (NASDAQ: AMZN) will report results next week. Here are the key numbers that we’re watching.

Alphabet Q4 Earnings Preview

Alphabet – Consensus Expectations for Q4 2024, Past Earnings Surprises, Consensus Revisions, and CAGR
Table 1

Source: Visible Alpha consensus (January 30, 2025). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

According to Visible Alpha consensus, total revenues expected for Q4 2024 have remained around $96 billion since the July quarter, driven by resilience in its search business. In addition, the Q4 consensus expectations for operating income and EPS around $30 billion and $2.12/share have not changed much since last quarter. Questions have been emerging about the impact of AI on its core business but have not impacted consensus revenue estimates for Q4 or 2025. However, consensus EPS of $2.12/share ranges from $2.44 to $1.84 for Q4, driven by differing assumptions around costs. It will be interesting to hear what Alphabet says about the outlook.

We are closely monitoring the trend of the Cloud business and note the improved sentiment for the Cloud business. The expected operating profit margin has increased significantly from 7.6% last January to now 16.2% for Q4. However, the 27 estimates range from 10% to 19%, signaling continued divergent views about the performance of this business.

For 2025, analysts are also split in their views. For the Cloud business, Visible Alpha consensus expects the operating profit margin to hit 17.5% next year but ranges from 9.3% to 18.5%. Longer-term, the consensus Cloud margin is estimated to generate a 20% margin by the end of FY 2026, ranging from 12% to 26.6%. What will be the right margin level for Alphabet’s Cloud business?

Alphabet stock has traded up 15% since last quarter’s release and up 42% since January 2024, outperforming the S&P 500. The consensus P/E for FY 2025 is 22x and 19x for FY 2026. Questions remain about the profitability of the Cloud business and its Unallocated and Other Bets. Could the Q4 release provide more visibility into the trajectory of 2025 profitability and give shares a boost?

Alphabet Consensus Estimate Revisions
Table 2

Source: Visible Alpha consensus (January 30, 2025). Stock price data courtesy of S&P Global. Alphabet’s stock price is as of the market close on January 29, 2025.

Amazon Q4 2024 Earnings Preview

Amazon – Consensus Expectations for Q4, Past Earnings Surprises, Revisions, and CAGR
Table 3

Source: Visible Alpha consensus (January 30, 2025). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

According to Visible Alpha consensus, total revenues expected for Q4 have come up slightly from August, from $186.1 billion to $187.4 billion, driven by expected strength in Amazon’s online retail business this holiday season. Consensus estimates for AWS have remained around $29 billion on projected stable growth in this segment. The focus will likely be on the Q4 performance and the 2025 outlook for the North American and AWS margins and their impact on EPS. The critical Q4 holiday selling period will be an important read into the consumer that may set the tone for FY 2025.

The North American operating margin has increased significantly from a meager 1.1% at the beginning of last year to an estimated 6.7% for Q4 2024. For Q4, the estimated margin ranges from 4.0% to 7.8%, with consensus at 5.7%. The estimated Q4 margin is expected to be 5.9% and 7.3%. What will the company say about the outlook for the North American online retail business?

AWS margin came in at 38.1% last quarter, and is expected to decline quarter-over-quarter to 35.3%. For Q4, expectations have steadily increased 650 bps since last January and there is concern that margins may be topping out. There is, however, a significant range of estimates for the Q4 AWS margin into next week’s release, with analysts expecting from 30% to 39%. The debate around AI is fueling the different assumptions.

The stock has traded up 27% since late quarter and up 58.1% from January 2024, outperforming the S&P 500.  The consensus P/E for FY 2025 is 37.7x and 30.7x for FY 2026. Could the Q4 release provide the next positive catalyst for the stock?

Amazon Consensus Estimate Revisions
Table 4

Source: Visible Alpha consensus (January 30, 2025). Stock price data courtesy of S&P Global. Amazon’s stock price is as of the market close on January 29, 2025.

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Apple Earnings Preview: Fiscal Q1 2025 – iPhone Expectations Continue to Move Lower

By: Melissa Otto, CFA

Apple (NASDAQ: AAPL) Q1 2025 Earnings Preview

Apple – Consensus Expectations for Q1, Past Earnings Surprises, Revisions, and CAGR
Table 1

Source: Visible Alpha consensus (January 27, 2025). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

Total revenues expected for fiscal Q1 have started to tick down slightly from the beginning of last quarter, according to Visible Alpha consensus, from $126.9 billion to $123.4 billion. This move is surprising, given Apple announced its new lineup ahead of the holiday season. Instead of numbers moving up, sentiment seems to reflect a view that the holiday buying was a bit underwhelming, due to continued weakness in China and fewer users upgrading in the US. Since last fall, expected Q1 iPhone units declined to 77 million and FY 2025 decreased further from 228 million to 223 million. Currently, Q1 is expected to deliver $70.7 billion in iPhone sales and $207.7 billion in 2025. Overall full-year iPhone revenue expectations have continued to edge down since early August 2024.

Apple Revisions
Table 2

Source: Visible Alpha consensus (January 27, 2025). Stock price data courtesy of S&P Global. AAPL current stock price is as of the market close on January 24, 2025.

Expectations for the high-margin Services segment remained stable for Q1 at $26 billion. The gross margin for the Services segment is over 70%, significantly higher than the 36% gross margin for Products. Given the large installed base, we are looking forward to what the company says in the Q1 earnings release about growth in Services and the role of Apple Intelligence in FY 2025.

Vision Pro will show another set of results this quarter. In Q1, the consensus of four analysts estimated 53,800 units to be sold, generating $279.7 million. For the full year, consensus revenue estimates for the Vision Pro are expected to remain flat year-over-year at $1.0 billion.

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The Visible Alpha AI Monitor Update: What’s Next for AI?

By: Melissa Otto, CFA

The Visible Alpha AI Monitor aggregates publicly traded U.S. technology companies, providing a comprehensive measure of the current state and projected growth of the core AI industry. This encompasses the AI-exposed revenues for companies that are building AI infrastructure and capabilities for both enterprises and consumers.

Investors may use the Visible Alpha AI Monitor to generate new ideas to capture growth emanating from the core AI industry, as well as to evaluate the potential AI exposure of technology stocks in their existing portfolios. We have identified specific line items that capture potential growth of AI-related revenues that are available in the Visible Alpha Insights platform (see the goals, objectives, and methodology of the AI Monitor towards the bottom of this page).

Key Questions for 2025

  • How will President Trump’s Stargate Project drive further upside in the AI trade?
  • Nvidia dominated both the AI Monitor’s stock performance and upward revisions to AI-exposed revenues in 2024. Will this continue in 2025?
  • Will AI agents and AI laptops help to drive broader adoption in 2025?

Introduction: Agents?

The generative AI (GAI) trend gained momentum in 2023 as Cloud Service Providers invested heavily. In 2024, the GAI theme continued to evolve and gain momentum. Visible Alpha observed that companies attempted to make a greater push with GAI into their organizations with the hopes of improving efficiency and enhancing the client experience.

Over the past few years, we have seen a lot of innovation in the chip and model and that has benefited Nvidia. However, there has not been as much innovation at the application level to drive broader adoption of GAI with end users, leading to a more competitive business model. The verdict is still out on the magnitude of the productivity impact GAI may yield for businesses and individuals. Could these productivity benefits help to deliver stronger fundamentals and earnings growth, or will it be merely anecdotal?

This year looks poised to be the year of GAI adoption in enterprises with the integration of AI agents into role-specific workflows. AI agents seem to enable domain and persona-specific workflows to complement human roles in an organization. For example, a firm may have a unique AI agent for Research, Security, Analytics, Sales, and Customer Service to complement the human work done in these functions.  We want to see how firms leverage these agents and what may be the direct or indirect impact on revenues and cost. 

AI Agents
Image 2

Source: Nvidia CEO’s keynote at the Consumer Electronics Show (January 7, 2025)

Visible Alpha AI Monitor Summary

AI Growth and Performance Overview
Table 1

Source: Visible Alpha consensus (December 31, 2024). Stock price data courtesy of S&P Global. Current stock prices are as of the market close on December 31, 2024. TOP 10 = IBM, Qualcomm, Oracle, Microsoft, Intel, Amazon, Super Micro Computer, Dell, Nvidia, Google. These firms currently have the largest revenue-generating segments geared to AI.

2024 Performance Summary

Currently, the Visible Alpha AI Monitor universe of 64 publicly traded U.S. companies is 79% weighted to the 10 largest companies, with the remaining 21% dispersed among 54 companies. On a market-cap-weighted and AI-exposed revenue-weighted basis, the Visible Alpha AI Monitor continued to be driven by stock price outperformance (vs. the S&P 500 index) of the largest companies this year. In addition, performance in the smaller companies (vs. the S&P 500 index), especially on an equal-weighted basis, lagged in the first half of the year, but in the second half picked up momentum. We noted this possible rotation in our July update: The Visible Alpha AI Monitor: Start of a Rotation?. On an equal-weighted basis, the AI Monitor generated an overall lower return when compared to the market-cap and AI-exposed revenue-weighted aggregations this year, driven by the drag of a lower return generated by the smallest names.  

Top 10: Nvidia Continues to Dominate Expectations

Based on an analysis of the 10 largest players, 2025 revenue forecasts for AI-exposed revenue segments increased $121 billion in total since January 2024. However, nearly $89 billion of the 2025 increase is from Nvidia, $10 billion from Super Micro Computer, and a further $12 billion increase from Dell. The declines in revenue estimates that the rest of the Top 10 has seen since January 2023 has largely stopped since the beginning of 2024. Lower expectations for AWS, Google Cloud, and Qualcomm QCT drove the downward revisions. However, the estimates for these companies have moderated and, in some cases, started to tick up, suggesting that the cuts to 2025 revenue expectations may have been too deep. Amazon and Alphabet now show upward revisions for 2025 and 2026

Smaller Contributors

The remaining list of 54 companies may serve as a good place for investors to discover new ideas by surfacing expanding new players. While smaller companies in aggregate have not performed as well as the Top 10, there have been some clear outperformers relative to the composite.  Among the smaller firms, revenue growth expectations are very mixed. Strong double-digit revenue growth is expected at some firms, while others are seeing estimates decline. These dynamics may help investors identify emerging trends in the space. 

In 2024, we have already seen that to be true with Pegasystems, Big Bear AI, and Arista Networks. These companies delivered strong outperformance (vs. the Russell 2000), which helped position these firms longer term as the possible up-and-comers in the space. Zeta Global, Vertiv, and Palantir are mid-caps with strong AI-exposed revenues and stock prices that also showed positive year-over-year outperformance.

In contrast to these small-cap and mid-cap outperformers, more than a third of the smaller companies in the AI Monitor substantially underperformed the Russell 2000 return of 11% in 2024. This weakness may imply that their fundamentals and valuations are under pressure. This weakness may make some of these companies go private or be attractive acquisition candidates. For example, Matterport, Alteryx, and Thoughtworks fell by more than 50%, and went private in 2024. These companies were removed from the AI Monitor.

Performance: AI Monitor Aggregated Stock Return Breakdowns

AI Monitor stock returns for the 64 companies are aggregated based on three weighting scenarios: weighted by the size of the AI-exposed revenues, equal-weighted and market cap weighted. Market cap-weighted returns show the direction of change year over year.

In CY2024 (as of 12/31/2024)

Table 2

In Q2 (as of 7/17/2024)

Table 3

In Q1 (as of 4/15/2024)
Table 4

Source: Visible Alpha consensus (December 31, 2024). Stock price data courtesy of S&P Global. Current stock prices are as of the market close on December 31, 2024. TOP 10 = IBM, Qualcomm, Oracle, Microsoft, Intel, Amazon, Super Micro Computer, Dell, Nvidia, Google. These firms currently have the largest revenue-generating segments geared to AI.

2024 AI Monitor Detailed Breakdown
Table 5

Source: Stock price data courtesy of S&P Global. 2025 Implied Return Data based on Visible Alpha target price consensus. Current stock prices are as of the market close on December 31, 2024.

What is Moving the AI Monitor  

In 2024, seven out of the 10 largest AI-exposed revenue generators drove strong outperformance, while 40% of the smaller-cap AI stocks underperformed the small-cap index. AI-exposed revenues are expected to grow by close to $500 billion, from $475 billion at the end of 2023 to $971 billion at the end of 2026, driven overwhelmingly by the Top 10 largest companies in the AI Monitor with 23% coming from Nvidia alone.

AI-Exposed Revenue Aggregations 
Table 4

Source: Visible Alpha consensus (December 31, 2024). Stock price data courtesy of S&P Global. Current stock prices are as of the market close on December 31, 2024. TOP 10 = IBM, Qualcomm, Oracle, Microsoft, Intel, Amazon, Super Micro Computer, Dell, Nvidia, Google. These firms currently have the largest revenue-generating segments geared to AI

Nvidia’s Upward Revisions Continue

From the end of 2023 to the end of 2026, consensus expectations for Nvidia’s AI-exposed revenues were revised up by an incredible $443 billion. These upward revisions contributed significantly to both the AI-exposed revenue concentration and the stock performance of the AI Monitor.

In 2024, it is worth highlighting there was an additional $200 billion in upward revisions on top of the initial $200 billion made in 2023 to Nvidia’s Data Center revenue estimates. This optimism has been driven by continued heavy capex investment by the cloud service providers to support transforming data centers to accelerated computing to support AI applications. In 2025, upward revisions for Nvidia may increase further, but at a slower pace and smaller magnitude.

Dell, AWS and Google Cloud Expectations Gain Traction

Dell revenue estimates for the AI-exposed Infrastructure Solutions Group have come up nearly $30 billion for 2025 and 2026. This improved growth outlook is driven by AI servers and the potential for a replacement cycle fueled by must-have next-generation AI laptops. In addition, 2025 and 2026 Google Cloud and AWS estimates were revised up in 2024 by $26 billion, implying a more favorable outlook for those two AI-exposed businesses.

On the other hand, Microsoft’s Azure business has not moved much. However, it is important to highlight that Microsoft did recast the accounting of their segments and this impacted the Azure revenue line. In addition, the company created a new line called AI Services to showcase this emerging revenue line. In FY 2024, this business generated $4 billion. It is expected to ramp up growth and generate over $19 billion by the end of FY 2026, based on Visible Alpha consensus. 

Super Micro Computer has seen significant volatility due to issues with its auditor. For 2025 and 2026, the AI-exposed revenue estimates have increased over $20 billion, as analysts gain more visibility into their growth. Given how rocky 2024 was for the company, it will be interesting to see how it performs in 2025.

What about Apple?

In addition to the Top 10, we are monitoring the potential AI revenue trends at Apple. The company released Apple Intelligence last summer and has embedded many new AI capabilities in its latest iPhone models. These product updates have not garnered much excitement with users and there are concerns that the new AI functionality has not been enough to make users want to upgrade their older phones. For 2025 iPhone units, expectations have come down from 237 million last year to now 225 million, in part due to lower growth in China. It will be interesting to see and hear what new updates Apple may reveal in 2025 that could get the market excited and fuel upgrades. For now, the verdict is still out on whether or not Apple Intelligence will drive the next iPhone upgrade cycle in 2025.   

AI-Exposed Revenue Revisions Summary
Table 7

Source: Visible Alpha consensus (December 31, 2024). Stock price data courtesy of S&P Global. Current stock prices are as of the market close on December 31, 2024. TOP 10 = IBM, Qualcomm, Oracle, Microsoft, Intel, Amazon, Super Micro Computer, Dell, Nvidia, Google. These firms currently have the largest revenue-generating segments geared to AI.

Regulatory Backdrop: Changing of the Guard and Stargate

Under the new US administration, President Trump wasted no time. He is focusing on securing AI leadership for the US. The rhetoric around regulation, governance, and oversight of AI has been silenced for now as he moves quickly to establish new AI infrastructure initiatives in the US.

Trump launched the Stargate Project, an AI infrastructure company that plans to invest $500 billion over the next four years to build out new AI infrastructure in the United States. Stargate will be initially financed by SoftBank, OpenAI (Microsoft), Oracle, and MGX. Speaking with President Trump, Oracle CTO, Larry Ellison, Softbank CEO, Masayoshi Son, and OpenAI CEO, Sam Altman, outlined the ambitious goals of Stargate and their initial commitment of $100 billion and the subsequent $400 billion of financing over the next four years.

According to the press release, SoftBank and OpenAI are the lead partners for Stargate, with SoftBank having financial responsibility and OpenAI having operational responsibility. Masayoshi Son will be the chairman. Arm, Microsoft, NVIDIA, Oracle, and OpenAI are the key initial technology partners. The buildout is currently underway, starting in Texas. As part of Stargate, Oracle, NVIDIA, and OpenAI will closely collaborate to build and operate this computing system.

There is currently some debate in the market about how Stargate will be financed. Based on comments from CEO Satya Nadella, Microsoft has already committed to investing $80 billion in AI data centers this year. Given Microsoft’s commitment, Softbank may contribute an additional $20 billion to complete the initial $100 billion of investment for Stargate. There has been some skepticism about whether or not Softbank has the funds secured for future investment.

Based on Visible Alpha consensus this fiscal year, Softbank is expected to have $40 billion in cash and $78 billion in long-term debt on its balance sheet. Additionally, Softbank’s monetization of gains from its early investment in Alibaba may help to finance some of the investment in Stargate. Based on Alibaba’s May 2024 20-F, Softbank owned a 14.2% stake in the stock. According to a Softbank press release from Softbank (Recognition of Gain on Sale of Investment Securities in Non-Consolidated Financial Results Following Completion of Settlement of Alibaba Prepaid Forward Contracts | SoftBank Group Corp.), the position has largely been monetized through forward contracts and a gain booked. The exact numbers will not be clear until the release of the 2024 20-F in May 2025.

Stargate: $500 Billion AI Infrastructure Project
Image 2

Source: Live from the White House, January 21, 2025

In 2023, President Biden issued an Executive Order to “ensure that America leads the way in seizing the promise and managing the risks of artificial intelligence (AI)” and 25 new regulations around AI were passed. The Order contained initiatives to strengthen AI safety and security, privacy protections, innovation, and competition, along with supporting consumers, workers, and equity. In January 2024, the agencies completed more than two dozen activities around AI talent, risks, and implications for the U.S. In addition, the White House created a blueprint for an AI Bill of Rights (ai.gov). However, this order, the AI Bill of Rights, and the progress made are no longer available on the ai.gov site, suggesting a complete change in direction.

As the government continues to focus on AI and its implications for the U.S., the new administration seems to be more focused on building and securing the infrastructure, instead of trying to regulate AI. Stanford University released an update in April 2024 to its AI Index. At that time, there was a surge in proposed bills for 2024-2025. The trajectory of the proposed regulations suggested we could see more regulations in 2025. However, given the changes this week, these proposals may be scrapped, delayed, or changed. 

Biden’s AI Executive Already Removed
Image 3

Source: Administration Actions on AI – AI.gov, January 22, 2025.

Passed AI-Related Regulations in the US and EU
Image 4

The number of AI-related regulations has risen significantly, both in the past year and over the last five years (Figure 7.4.1). In 2023, there were 25 AI-related regulations, a stark increase from just one in 2016. Last year alone, the total number of AI-related regulations grew by 56.3%. Source: Stanford University AI Index 2024 (https://aiindex.stanford.edu/report/)

 

Image 5

In 2023, policymakers on both sides of the Atlantic put forth substantial proposals for advancing AI regulation The European Union reached a deal on the terms of the AI Act, a landmark piece of legislation enacted in 2024. Meanwhile, President Biden signed an Executive Order on AI, the most notable AI policy initiative in the United States that year. Source: Stanford University AI Index 2024 (https://aiindex.stanford.edu/report/)

Final Thoughts 

Given Trump’s support of AI and the expansion of AI infrastructure in the US, cloud service providers (CSPs) will continue to remain front and center. In 2024, Nvidia and Palantir led once again, driven by strong demand for AI infrastructure solutions. Will this continue again in 2025?

At the same time, debates are emerging about how best to create scalable enterprise applications for GAI. For many firms, it is not clear how they will participate in bringing GAI to enterprises and grow the impact of AI exposure in their business models. The importance of specializing and bringing domain expertise to smaller models will be increasingly critical to the success of these tools. In 2025, we are watching the pace at which companies will be enabling innovation with AI in enterprises. There is some skepticism emerging about the actual use cases, real impact, and ROI. AI agents and AI laptops may be compelling mechanisms for fostering broader adoption and driving specialized applications in enterprises. However, the verdict on these new AI tools is still out.

We are interested to see how the Stargate project partnership between ARM, Nvidia, Oracle, Softbank, and OpenAI (Microsoft) could drive growth in sales and earnings in the key players. There may be a few new companies in the AI space that emerge as significant beneficiaries of the significant AI infrastructure growth in the US. At the moment, it feels like 2025 could be a rising tide that lifts all boats.

AI Monitor Goals and Objectives

The objective of the Visible Alpha AI Monitor is to show the investment community which companies are likely to drive AI going forward. As the world embraces AI and its applications to enterprise workflows and our daily lives, big questions exist about how AI’s impact on company business models will unfold over the next 3-5 years. AI can potentially free people from tedious grunt work to enable more focus on critical workflows that require human creativity and analysis.

A primary goal of the Visible Alpha AI Monitor is to show which U.S. companies and specific line items we are keeping an eye on as the embryonic AI theme emerges across company fundamentals and begins to scale broadly across the economy. We are monitoring how AI may be reflected in the numbers and which companies may be benefitting more or less. This universe attempts to be comprehensive and to show investors the dynamics of both the large and smaller U.S. players. Additionally, it aims to help investors identify new names that may be smaller and less covered but potentially growing and emerging more quickly.

AI Monitor Methodology

Using Visible Alpha’s comprehensive database of detailed estimates pulled directly from sell-side analysts’ spreadsheet models, we have assembled an aggregation with a universe of 64 publicly traded companies that are contributing to the infrastructure and broad scaling of AI capabilities. This monitor aims to provide a current and future snapshot as to where AI-related revenues are and is not growing across each of these 69 companies, particularly the 10 largest.

We have aggregated the revenues of specific business segments at firms that are driving the wider AI trend. For larger firms, we have attempted to pinpoint where in their revenue model AI is driving growth. For some smaller firms, we are simply incorporating 100% of revenues. The AI-exposed revenue lines we identify are intended to be used as a proxy for monitoring the growth of each company’s AI business. Given both the lack of discrete company disclosures and how intertwined AI and conventional technologies and services can be, these lines should not be taken as exact quantifications of AI revenues, but are, we believe, the best systematic approximation available.

The AI Monitor provides three measures of stock performance for its universe. These metrics are meant to show the returns of various weighting schemes. The returns are calculated on both an equal-weighted and market-cap-weighted basis. The universe performance of the AI Monitor is also weighted based on AI-exposed revenues and calculated in aggregate. From 2024, the return calculations were standardized, and market-cap-weighted now reflects year-over-year changes.

For Visible Alpha subscribers, details of these companies can all be found within the Visible Alpha Insights platform. Each company included in the monitor has coverage by at least four sell-side analysts. In addition, given the quickly evolving state of the AI space, these line items are subject to change and may shift significantly over time. We plan to refresh the data on an ongoing basis and provide regular updates.

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Meta & Microsoft Earnings Previews

By: Melissa Otto, CFA

Meta (NASDAQ: META) Q4 2024 Earnings Preview

Meta Platforms – Consensus Expectations for Q4 2024, Past Earnings Surprises, Revisions, and CAGR
Table 1

Source: Visible Alpha consensus (January 23, 2025). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

According to Visible Alpha consensus, estimated revenues for both the Family of Apps and the Reality Labs segments in Q4 2024 have not moved since October, driven by continued strength in DAU performance in the Family of Apps segment across geographies, especially in the U.S. and Europe.

For the Family of Apps segment, expectations for operating profit have edged up each quarter since last January to $25.3 billion, up slightly from last quarter, but there is some debate among analysts. Into Q4, estimates for the Family of Apps’ income from operations range from $22.9 billion to $26.6 billion. Losses at Reality Labs are expected to be -$5 billion and have remained stable since last July, ranging from -$3.5 billion to -$6.5 billion. We are looking forward to hearing the Company’s outlook for both business lines in the earnings call.

Looking ahead, consensus expects the Q1 2025 Family of Apps revenue and operating profit to be $41.2 billion and $20.7 billion. The FY 2025 expectations for sales and operating income from the Family of Apps have been moving around and shifted down a bit from $185.2 billion to $184.0 billion and $97.1 billion to $95.5 billion since last quarter, driven by slightly changing views about this business. In addition, projected losses from Reality Labs for 2025 have slightly improved since last quarter, declining from -$20.1 billion to -$19.4 billion. Capex investments in Q1 and for the full year in 2025 have been moving higher, suggesting that Meta may continue to invest in its AI strategy.

The stock has been strong since last January, delivering over 80% return and outperforming the S&P 500. What new information will come out of the Q4 release that may provide upside to the stock?

Meta Platforms Consensus Revisions
Table 2

Source: Visible Alpha consensus (January 23, 2025). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date. Stock price data courtesy of S&P Global. META’s current stock price is as of the market close on January 22, 2025.

Microsoft’s (NASDAQ: MSFT) Fiscal Q2 2024 Earnings Preview

Microsoft – Consensus Expectations for Q2 2024, Past Earnings Surprises, Revisions, and CAGR
Table 3

Source: Visible Alpha consensus (January 23, 2025). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

According to Visible Alpha consensus, total revenues expected for Q2 have remained around $69 billion since last January, driven by resilience in its core business segments. In particular, the Intelligent Cloud segment, which makes up 38% of total revenues, is projected to remain solid, with consensus estimates now expecting $25.8 billion for Q2, driven by Azure.  Azure revenues are expected to generate $18 billion in Q2 with AI Services expected to generate $2.3 billion. The Q2 consensus for the Intelligent Cloud business’s operating profit margin is 43.8% and 42.8% for the full year.

We are closely watching what the company will say about the outlook for further investments, as Microsoft’s FY 2025 CapEx numbers have continued to increase steadily since last year. In addition, we are looking for further financial details from Microsoft about their partnership with Softbank, Oracle, and OpenAI in the Stargate Project. According to consensus projections, CapEx estimates are projected to increase to over $18 billion from $44.5 billion at the end of FY 2024 to $63.1 billion in FY 2025, up 4x from FY 2020.

Microsoft stock has traded up 5.9% since the July earnings release, and is up 21.2% since January 2024, underperforming the 25% delivered by the S&P 500. The consensus P/E for FY 2026 is up to 30x. Could the Q2 release and H2 outlook for FY 2025 begin to drive outperformance in the stock?

Microsoft Consensus Revisions
Table 4

Source: Visible Alpha consensus (January 23, 2025). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date. Stock price data courtesy of S&P Global. MSFT’s current stock price is as of the market close on January 23, 2025.

 

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Netflix Earnings Preview: Fiscal Q4 2024

By: Melissa Otto, CFA

Netflix Inc. (NASDAQ: NFLX) will report Q4 2024 results on Tuesday, January 21, 2025. Here are the key numbers that we’re watching.

Netflix – Consensus Expectations for Q4, Past Earnings Surprises, Revisions, and CAGR

Table 1

Netflix Q4 2024 Earnings Preview and Outlook

Q4 2024 expectations: Revenues are expected to be supported by the continued paid-sharing, growth of the ads business, and further monetization. While Q3 showed positive trends, questions remain around the investments in the ad tier, increased competition, and its impact on paid sharing.

According to Visible Alpha consensus, the 21.9% margin is expected to be driven by total revenues of $10.1 billion and operating income of $2.2 billion in Q4 2024, up from 16.9% in Q4 2023. These estimates have not changed much since last quarter, and are driven by consistent expectations for U.S. streaming and an uptick ad-supported revenue. It is worth highlighting that since the July quarter, ad-supported revenue has moved back up to $746 million, but is still slightly lower than the initial $788 million revenue expectation at the beginning of FY 2024. In addition, earnings estimates have moved up from $3.87/share to now $4.23/share, since July.

FY 2025 expectations: The company expects to grow revenues by increasing engagement trends and reducing churn with a more diverse entertainment offering, including more live events. Additionally, price hikes are expected in UCAN. Gaming and the growth of ads could be key drivers in 2025. According to consensus, analysts expect the company to generate a 28.4% margin from revenue of $43.8 billion and $12.4 billion in operating profit in FY 2024, which has not changed much since July 2024.

The stock price has traded up around 20% to $828 since last quarter’s release, driven by the resilience in the company’s net adds and the prospects from more live events. Will the outlook for the rest of 2025 support the continued upward trajectory of Netflix’s stock price?

The Direction of Key Netflix Estimates
Table 2

Source: Visible Alpha consensus (January 15, 2025). Stock price data courtesy of S&P Global. Netflix stock price is as of the market close on January 14, 2025.

Netflix Fundamentals
Table 3

Source: Visible Alpha consensus (January 15, 2025). Stock price data courtesy of S&P Global. Netflix stock price is as of the market close on January 14, 2025.

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CES 2025: AI Focus

By: Melissa Otto, CFA

Nvidia Corp. (NASDAQ: NVDA) CEO Jensen Huang gave the keynote at the Consumer Electronics Show (CES) in Las Vegas on January 6, 2025. Here are the key highlights and numbers that we’re watching.

CES Highlights: Introduction

Jensen Huang, CEO of Nvidia, delivered the Consumer Electronics Show (CES) keynote on Monday evening, January 6, 2025. The comprehensive presentation incorporated near-term and long-term trends for AI infrastructure and applications, including an emphasis on robots and self-driving cars.

He spent time on Blackwell and highlighted how it is now in production. The Blackwell business model remains the key debate around Nvidia’s valuation and may make the stock volatile this year.

Nvidia CEO Jensen Huang Confirms Blackwell in Full Production
Image 1

Source: Visible Alpha consensus (January 6, 2025)

AI agents and AI laptops are two near-term AI trends that may be worth monitoring closely. AI agents keep coming up and this year, these may start to take form and show up in workflows. Huang illustrated how different personas can be brought to life with agents. While the verdict is still out on agents, it will be interesting to see how they evolve and whether or not they may serve as a catalyst for broader adoption.

CEO Huang Showcasing Agentic AI
Image 2

Source: Visible Alpha consensus (January 6, 2025)

He illustrated the company’s long-term aspirations of seeing a world with more robots and self-driving cars. (See our report on Bringing AI to Heavy Industry – Visible Alpha) However, questions remain about what new tools, functions, and applications will get users excited and drive broader adoption. In addition, investors are wondering how soon we may see more robots in both manufacturing and everyday life and what the cost may be.

Huang’s focus seemed to be more on hardware and how Nvidia’s chips will enhance workflows and improve productivity. While Nvidia has been the undisputed winner in transitioning the data centers for generative AI and increasing compute power, new investment stories may begin to emerge in 2025.  It may be time to look beyond Nvidia for underappreciated beneficiaries of the AI theme trading at cheaper valuations.

CES Highlights: Blackwell and the Nvidia Valuation Debate

Of particular importance for Q4, he highlighted that Blackwell is in production. The ramp from Q4 to Q1 of this new product will likely be an important driver of the stock in the first half of 2025. In addition, the pricing, profitability, and pace of supply will be critical to quantifying the timing and magnitude of Nvidia’s earnings growth in FY 2026.

Since late November, the Data Center segment’s expected revenues in Q4 edged up slightly higher from $33.6 billion to $34.0 billion, according to consensus. While the pace of analysts’ upward revisions to the Data Center segment has moderated, it will be important to see how Nvidia guides the market for Q4 and the rest of FY 2025, and to what extent higher pricing and volumes will be expected to continue.

Currently, there is significant debate about the performance of the Data Center segment. Based on Visible Alpha consensus, this business is projected to generate $34.0 billion in revenues in Q4 2025, with estimates ranging from $31.8 billion to $38.0 billion. In particular, the company’s commentary and outlook for Blackwell will likely be important in the Q4 earnings call.  The B-series revenue is expected to jump from $3-4 billion this year to $74.9 billion next year, revised up nearly $20 billion since last quarter.

Looking ahead, consensus expects FY 2026 Data Center revenue of $183.9 billion, up from the $170.8 billion estimated in November 2024. The estimates for this line item have continued to widen and now range from $152.4 billion to $252.8 billion, driven by significant market debate around Blackwell’s impact on revenue and gross margin.

It is worth noting that the consensus gross profit margin for the Data Center segment for FY 2026 has decreased by 250bps to 75.4%, reflecting lower expectations for FY 2026. In addition, the consensus is projecting the operating profit margin to come down from this year’s projected annual peak of 66.6%. These dynamics in consensus estimates are causing the expected FY 2026 consensus P/E to be 33x and to range from 24x to 37x.

Nvidia’s Key Financial Items
Table 1

Source: Visible Alpha consensus (January 7, 2025). Stock price data courtesy of S&P. Nvidia’s current stock price is as of the market close on January 6, 2025.

CES Highlights: Will AI laptops Help Drive an Upgrade Cycle?

Another important looming question in the market is around the laptop upgrade cycle. At the moment, enterprises and consumers have not demonstrated excitement around upgrading their laptops. Huang explained that AI laptops will be equipping various levels of RTX at reasonable price points, available from this March.

CEO Huang Highlighting AI Laptops
Image 3

Source: Visible Alpha consensus (January 6, 2025)

By enhancing the power and capabilities of the laptop, this hardware upgrade should support more efficient coding by automating the standardized areas of the development process. In addition, it should also enable engineers to focus more on the creative workflows in the development process. This may be where the AI ‘agents’ start to appear.

One of the biggest challenges of AI applications and agents is the requirement to be extremely domain-specific. Embedding these in the backend workflows of engineering and data operations may be a natural place for them to be trained effectively and demonstrate value. However, at the moment, requiring domain experts at the top of the stack to train agent personas has been challenging and expensive. If the value-add of these next-generation laptops is able to show a meaningful impact to speed and move the needle on innovation, then there could be an uptick in demand, which could jumpstart a replacement cycle.

Based on a survey conducted by 451 Research (part of S&P Global Market Intelligence), AI is set to become more important to enterprises in 2025. As companies think about the best way to bring AI into their organizations, their existing hardware may require an upgrade. According to 451 Research, Dell, HP, and Lenovo were the top three laptops that organizations plan to buy. All three recently released new AI laptops. Could these new models drive growth that exceeds current expectations over the next few years?

Based on Visible Alpha consensus, these three laptop manufacturers are estimated to see unit sales 15-25% below the previous demand surge from COVID, while prices are expected to increase. In addition, valuations are at a discount compared to other AI plays in the sector.
Looking back to FY 2021-2022 when units peaked, AI may help drive upside to current unit expectations at higher price points over the next few years.

Notebook Data for Dell, Lenovo, and HP
Table 2

Source: Visible Alpha consensus (January 7, 2025). Stock price data courtesy of S&P. Nvidia’s current stock price is as of the market close on January 6, 2025.

AI and the Laptop Purchasing Survey
Image 4

Source: 451 Research, part of S&P Global Market Intelligence

Image 5

Source: 451 Research, part of S&P Global Market Intelligence

 

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Nvidia, Dell, & Snowflake Post-Earnings Summary: Fiscal Q3 2025

By: Melissa Otto, CFA

Nvidia’s Fiscal Q3 2025 Earnings

Nvidia (NASDAQ: NVDA) delivered total revenues for Q3 of $35.1 billion, beating Visible Alpha’s consensus estimate of $33.3 billion by $1.8 billion. This was driven by continued revenue growth in Nvidia’s Data Center segment, which saw its Q3 revenue surge to $30.8 billion, $1.5 billion ahead of the $29.3 billion consensus estimate coming into the quarter and capturing most of the beat to expectations.

This revenue surge has continued to be driven by strong demand for Hopper GPUs, particularly from cloud service providers. Blackwell demand is “staggering” with demand greatly exceeding supply. Management noted that they are on track to exceed their previous Blackwell revenue estimate of several billion dollars as visibility into supply continues to increase.

However, the Data Center segment’s non-GAAP gross margin dipped to 77.8% in Q3, slightly below consensus of 78.3%. This muted the magnitude of the surprise to the EPS line with non-GAAP diluted EPS of $.81/share, exceeding the consensus of $.75.

Nvidia Estimate Revision Trends
Table 1

Source: Visible Alpha consensus (December 11, 2024). Stock price data courtesy of S&P. Nvidia’s current stock price is as of the market close on December 10, 2024.

The Outlook: Concerns about Blackwell’s Ramp and Gross Margin

For fiscal Q3 2025, Nvidia guided nearly $1 billion ahead of expectations to $37.5 billion in total revenue, with analysts now projecting the Data Center segment to make up $34.1 billion, up from $32.5 billion.

However, according to management, as Blackwell ramps, gross margins are expected to moderate to the low 70s. When fully ramped, the Company expects Blackwell margins to be in the mid-70s. However, there are questions about the timing of Blackwell’s ramp and how that will be reflected in the quarters.

This commentary in the earnings call led to a 100 bps decline in gross margins for both FY 2026 and FY 2027. Sentiment seems to be a bit more cautious on the magnitude of the earnings impact from Blackwell. It is worth noting that the timing of the Blackwell ramp will be a critical dimension to the investment thesis. There continues to be debate among analysts about the quarterly pace and timing of the B-series and GB-series ramps and how much the long-term expected growth is projected to add to revenues in FY 2026 and FY 2027.

According to Visible Alpha consensus, Data Center revenues for FY 2026 are now expected to be $183.8 billion, up from $179.8 billion on November 20, 2024, with consensus EPS increasing to $4.46/share, up only $.05/share, due to the margin shift.

Nvidia Consensus Estimates
Table 2

Source: Visible Alpha consensus (December 11, 2024). Stock price data courtesy of S&P. Nvidia’s current stock price is as of the market close on December 10, 2024.

Dell’s Fiscal Q3 2025 Earnings

Dell (NYSE: DELL) delivered total revenues for Q3 of $24.4 billion, slightly missing Visible Alpha’s consensus estimate of $24.7 billion by $0.3 billion. The Infrastructure Solutions Group (ISG) segment saw its Q3 revenue come in at $11.4 billion, in line with the consensus estimate coming into the quarter. This segment was driven by a 58% increase in Servers and Networking. However, this was slightly below the level that was expected. In addition, Storage increased 4%, slightly ahead of expectations.

The company delivered a respectable AI server backlog of $4.5 billion in Q3. In Q3, the company shipped $2.9 billion of AI servers. The company noted on the Q3 call that it saw a shift of the orders moving towards the Blackwell design, the GB200, and this is now on backlog.

The ISG segment’s non-GAAP gross margin came in at 33.8% in Q3, in line with expectations and down from 37.3% in Q3 2023. Despite this decline in gross margin, the ISG operating profit margin came in at 13%, ahead of the 12% expected. In addition, Dell expects the ISG operating margin to continue to improve in Q4.

Revisions of Dell Estimates
Table 3

Source: Visible Alpha consensus (December 11, 2024). Stock price data courtesy of S&P. Dell’s current stock price is as of the market close on December 10, 2024.

The Outlook: Below Expectations

Near-term Growth

For fiscal Q4 2025, Dell guided to $24.0-25.0 billion in total revenue, slightly below pre-Q expectations of $25.7 billion. The ISG segment revenue is projected to make up $11.8 billion, and to see its margin improve quarter over quarter from 13% to 15%. The ISG consensus margin for Q4 is expected to be 15.0%, up from 14.0% in Q3.

Long-term Outlook

Consensus for Dell’s FY 2025 revenues dropped to $96.1 billion from $97.7 billion, below what was expected by analysts ahead of Q3. However, ISG’s margins are trending better. Currently, Visible Alpha consensus is projecting ISG’s operating profit margin to jump from 8% in Q1 this fiscal year to 15% in Q4 and to 12% by the end of fiscal year 2025.

Looking further out, analysts remain bullish on the demand for AI servers. Based on six sources, analysts expect to see AI server revenue generate $10.5 billion in FY 2025 and to expand to $17.5 billion in revenue, an increase from the previous $13.8 billion estimate for FY 2026. ISG revenue is expected to grow to $51.7 billion in FY 2026, with nearly all of the year-over-year increase coming from the AI servers. ISG profitability is expected to hit 12.0% operating profit margin this year and to remain there for FY 2026. How long will it take to return to the previous 13% levels?

According to Visible Alpha consensus, EPS is expected to grow nearly 20% from $7.82/share in FY 2025 to $9.38/share in FY 2026. Estimates range from $8.30/share to $10.50/share and have widened, putting the FY 2026 P/E consensus at 12x, and in the 11x-14x range, up from 11x-13x.

DELL stock has traded down around 17.6% since last quarter’s November earnings release. Will the ramp in AI servers continue? Will ISG’s profitability return to beat expectations and be a catalyst in H1 2026?

Dell Consensus Estimates
Table 4

Source: Visible Alpha consensus (December 11, 2024). Stock price data courtesy of S&P. Dell’s current stock price is as of the market close on December 10, 2024.

Snowflake Q3 2025 Earnings and Outlook Beat Expectations

According to Visible Alpha consensus, Snowflake’s (NYSE: SNOW) total revenues of $900 million and operating income of $59 million beat consensus expectations in Q3 2025. Operating profit expectations for the Q4 have moved up more than 20% from $34 million in November to now $42 million. However, these estimates are still significantly lower than the initial estimate of $102 million in January 2024. Operating profit expectations for FY 2025, FY 2026, and FY 2027 have all moved up since the release. Overall growth continues to be driven by the strength of Snowflake’s data platform, the potential network effects of moving more data there, and the promising outlook for their new AI-related products.

Currently, there is debate about gross margin performance. Based on Visible Alpha consensus, the non-GAAP gross margin estimates range from 73% to 81% for Q4 2025. For FY 2025, Visible Alpha consensus for gross margin has moved up to 76% from 75% last quarter, and is expected to remain at the 76% level over the next few years. It is still below the 77% previously expected for FY 2025 and FY 2026 at the beginning of the year, but consensus may have now settled at the correct level of 76%.

The stock has been a significant underperformer this year, but surged 32.9% since the November quarter’s release. Could the Q4 release provide more visibility into FY 2025 and lead to another positive catalyst for the stock?

Snowflake Revisions
Table 5

Source: Visible Alpha consensus (December 11, 2024). Stock price data courtesy of S&P. Snowflake’s current stock price is as of the market close on December 10, 2024.

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Dell Earnings Preview: Fiscal Q3 2025

By: Melissa Otto, CFA

Dell Inc. (NYSE: DELL) will report fiscal Q3 2025 results on Tuesday, November 26, 2024, after the market close. Here are the key numbers that we’re watching.

DELL – Consensus Expectations for Q3 2025, Past Earnings Surprises, Revisions, and CAGR
Table 1 Dell

Source: Visible Alpha consensus (November 20, 2024)

Dell’s Fiscal Q3 2025 Preview

For fiscal Q3 2025, Dell guided to $24.0-25.0 billion in total revenue, in line with expectations of $24.7 billion, ahead of the release next week. The ISG segment revenue is projected to make up $11.3 billion, and to see its margin improve quarter over quarter. The company called out improvements in the storage business and operating expense scaling last quarter. The ISG consensus margin for Q3 is now expected to be 11.9%, but is down from the 12.6% expected at the end of last quarter.

Commentary on the company’s AI server backlog will be important for assessing the outlook. Issues around the AI backlog in Q1 led to disappointment in the stock, due to the lack of ISG operating profit growth generated by an additional $1.7 billion in AI server shipments year over year. However, in Q2, the company shipped $3.1 billion of AI servers and the AI server backlog remained at ~$3.8 billion. Training foundational models has been a large percentage of the pipeline and it will be interesting to see if that is still true. Will the company be ready to ship more AI servers in Q4 and how will this impact their outlook?

Revisions of DELL Estimates
Table 2 Dell

Source: Visible Alpha consensus (November 20, 2024). Stock price data courtesy of FactSet. Dell’s current stock price is as of the market close on November 19, 2024.

The Longer-Term Outlook

Dell guided FY 2025 revenues to $95.5-98.5 billion, in line with the $97.6 billion expected by analysts ahead of next week’s Q3 release. In addition, the company highlighted that ISG will deliver 11-14% long-term margins. Currently, Visible Alpha consensus is projecting ISG’s operating profit margin to increase from 8% in Q1 this fiscal year to 11% by the end of fiscal year 2026. The margin expectation declined 130bps since last quarter, suggesting a more tempered view of the margin expansion.

Looking further out, analysts remain bullish on the demand for AI servers. Based on six sources, analysts expect to see AI server revenue generate $10.7 billion in FY 2025 and to expand in FY 2026 to $15.2 billion, up from $13.8 billion last quarter. ISG revenue is expected to grow to $51.8 billion in FY 2026, with nearly all of the year-over-year increase coming from the AI servers. ISG profitability is expected to exceed 11.5% operating profit margin this year and to decrease to 11.1% by FY 2026. How long will it take to return to the previous 13% levels?

According to Visible Alpha consensus, EPS is expected to grow nearly 20% from $7.85/share in FY 2025 to $9.42/share in FY 2026. Estimates range from $8.75/share to $10.50/share, putting the FY 2026 P/E consensus at 14x, and in the 13x-16x range.

DELL stock has traded down around 20% since last May’s earnings release, but is up 23% since the August earnings announcement. Will the ramp in AI servers continue? Will ISG’s profitability beat expectations and be a catalyst in Q4 2025 and FY 2026?

DELL Segment Details
Table 3 Dell

Source: Visible Alpha consensus (November 20, 2024). Stock price data courtesy of FactSet. Dell’s current stock price is as of the market close on November 19, 2024.

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Nvidia Earnings Preview: Fiscal Q3 2025

By: Melissa Otto, CFA

Nvidia Corp. (NASDAQ: NVDA) will report fiscal Q3 2025 results on Wednesday, November 20, 2024, after the market close. Here are the key numbers that we’re watching.

Nvidia – Consensus Expectations for Q3 2025, Past Earnings Surprises, Revisions, and CAGR
Nvidia Image 1

Source: Visible Alpha consensus (November 13, 2024). “Previous Surprises” indicate the direction that specific line items beat or missed. “Consensus Revisions” show the trajectory of line items from a given date.

Nvidia’s Q3 2025 Earnings Preview

According to Visible Alpha consensus, total revenues of $33.1 billion expected for Fiscal Q3 2025 have continued to increase steadily since the beginning of the year. Overall growth continues to be driven by optimism about the strength of Nvidia’s Data Center segment. This segment has seen its expected top-line performance for Q3 increase from $20.8 billion in January 2024 to its current projection of $29.0 billion, up nearly 50%. This revenue surge has been driven by strong demand for its GPUs from cloud service providers, and the move to accelerated computing in the data centers for AI.

More recently, the Data Center segment’s expected revenues in Q3 edged up slightly higher from $28.5 to $29.0, according to consensus. While the pace of analysts’ upward revisions to the Data Center segment has moderated since the first half of this year, it will be important to see how Nvidia guides the market for Q4 and the rest of FY 2025, and to what extent higher pricing and volumes will be expected to continue.

Currently, there is significant debate about the performance of the Data Center segment. Based on Visible Alpha consensus, this business is projected to generate $32.5 billion in revenues in Q4 2025, with estimates ranging from $29.2 billion to $40.1 billion. For FY 2025, Visible Alpha consensus for this segment has increased nearly $1.0 billion to $110.5 billion since the Q2 release in August, a slowdown from the pace of revisions in the first half. However, the estimates now range from $106.4 billion to $119.2 billion, a significant narrowing from the February range of $65.4 billion to $121.2 billion.

In particular, the company’s commentary and outlook for Blackwell will likely be important in the Q3 earnings call.  Blackwell revenue is expected to jump from $3-4 billion this year to $55.8 billion next year. Looking ahead, consensus expects FY 2026 Data Center revenue of $170.8 billion. The estimates for this line item range from $148.4 billion to $212.5 billion and remain a significant market debate, due to the questions around Blackwell’s ramp. It is worth noting that the consensus gross profit for the Data Center segment for FY 2026 has decreased by nearly $8 billion since last quarter, reflecting lower expectations for next year. In addition, for FY 2026 and FY 2027, consensus is projecting the operating profit margin to come down from this year’s peak of 66%. These dynamics in consensus estimates are causing the expected FY 2026 consensus P/E to be 36x and to range from 27x to 52x.

The stock has traded up 56% since the May release, and is up around 200% year-to-date. Could the Q3 release provide the next positive catalyst for the stock or are expectations largely priced in for now?

Nvidia Consensus Revisions
Nvidia Image 2

Source: Visible Alpha consensus (November 13, 2024). Stock price data courtesy of FactSet. Nvidia’s current stock price is as of the market close on November 12, 2024.

Nvidia’s Key Financial Items
Nvidia Image 3

Source: Visible Alpha consensus (November 13, 2024). Stock price data courtesy of FactSet. Nvidia’s current stock price is as of the market close on November 12, 2024.

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