NVidia trounced analysts with spectacular earnings and guidance for the April fiscal quarter of 2023 establishing itself as the leader in the emergence of AI technology. Nvidia fulfills the insatiable market needs of generative AI and accelerated computing. NVDA shares have been running hot with the generative artificial intelligence boom that started with the launch of OpenAI’s ChatGPT back in November. Even with that NVDA projected $11 billion in sales for the quarter ending in July, shocking analysts who had forecast around $7.18 billion for the quarter.
NVDA closed at $379.80 +74.42 or +24.37% Thursday, $20 off the new all-time high $394.80 seen in the morning. The move tore apart protective market shorts positioned for debt ceiling risk. The Nasdaq 100 rose about 2.3% with Nvidia’s large and growing weighting in the index. NVDA accounted for near 60% of the index’s gains on Thursday and is now the single-biggest contributor to the year-to-date rally.
Last earnings we surmised that Nvidia’s superior growth prospects are tied to the substantial investments it made in AI-powered technology over the past several years. CEO Jensen Huang commented back then that AI adoption is at an inflection point as the company prepares to launch new cloud-based AI products. Three months later here we are.
Nvidia Fiscal Q1 2024 Earnings
NVidia segments in game graphics and artificial intelligence (AI) chips saw huge growth in 2020 and 2021 during the pandemic, slowed down in gaming with inflation and back to work and school affects. However, we saw a big boost in gaming revenue last quarter and the impact of Bid data and Ai this quarter.
Highlights
- $1.09 earnings per share v’s 92 cents forecast from analysts. Down 20% from a year ago and up 24% from the previous quarter.
- Quarterly revenue of $7.19 billion, up 19% from previous quarter, smashing $6.5 billion forecasts.
- Record Data Center revenue of $4.28 billion, up14% due to AI-driven demand.
- Gaming revenue down 38%
- Q2 revenue forecast: Second quarter fiscal 2024 revenue outlook of $11.00 billion, crushing $7.2 billion expectations from analysts.
- During Q1F24, NVIDIA returned to shareholders $99 million in cash dividends.
- NVIDIA will pay its next quarterly cash dividend of $0.04 per share on June 30, 2023, to all shareholders of record on June 8, 2023.
NVidia’s Data Center segment in particular is perfectly positioned to capitalize on what CEO Jensen Huang has called a “ten-year transition” to retool data centers in order to support accelerated computing and generative AI.
With that 25% post-earnings tear NVDA is now up 161% this year on the promise that the company’s chips will power the future of AI. The promise has become a mania as we have seen many times in tech stocks. These prices are at 186 times current earnings, something lost in the rush. Bear market, banks imploding and a debt ceiling impasse. Heck no one told NVidia investors!
NVDA Stock Market Reaction
- $379.80 ▲ +74.42 (+24.37%) Close
- $379.80 ▲ +201.29 (+112.76%) past year
- $379.80 ▲ +315.4 (+489.71%) past 5 years
- 52wk High 394.80 (All time high)
- 52wk Low 108.13
NVDA Stock Surge Knock-on Effect:
The Nasdaq 100 rose about 2.3% with Nvidia’s large and growing weighting in the index. NVDA accounted for near 60% of the index’s gains on Thursday, and is now the single-biggest contributor to the year-to-date rally.
Winners
- Nvidia’s semiconductor parts manufacturer Taiwan Semiconductor Manufacturing (TSM) went up for the ride by 4.2%.
- Netherlands-based ASML, has the machinery to make the semiconductors rose 6.25%.
- Monolithic Power Systems, which runs the power systems needed for advanced computing, soared 17% in one day.
- Advanced Micro Devices (AMD) rose+11, they specialize in GPU chips also.
- Dell rose 4.7% uplift
- HP $HPQ +1.2% surged 3%.
- Microsoft, with it’s close partnership with Nvidia rose 3.85%
- Google rose over 2%.
- Palantir Technologies PLTR rose 6.5% uplift,
- C3.ai gained rose over 6% a
- BigBear AI rose 9%
- The VanEck Semiconductor Index was up over 5%
- Philadelphia Stock Exchange Semiconductor Index soared 5.1%
Losers
- Intel focuses on producing traditional CPU chips, was down 5.52%. The concern is its left behind, again.
Artificial Intelligence – AI
NVDA’s new AI supercomputer runs on its H100 GPU and is now in full production. The company’s strategy is to offer AI-as-a-Service to enterprises, enabling them to deploy large language models and other AI workflows. GPUs are a natural fit for powering the kind of high-level computing that’s involved in AI, including for chat bots like OpenAI’s ChatGPT. NVDA is the global leader in the GPU market with a share greater than 75%.
Segments:
Gaming
A newly announced partnership with Microsoft will bring XBox and Activision Blizzard games, including popular Call of Duty and Overwatch, to Nvidia’s GeForce Now cloud gaming services.
Right on cue, it’s out this year with its next-generation H100 graphics processing units, or GPUs, in hot pursuit of the AI business. Its GPUs have some competitors (Advanced Micro Devices Inc. is one), but investors mostly seem happy to ignore the perceived threat for now because Nvidia’s market share is so dominant. And as Sanford C. Berstein semiconductor analyst Stacy Rasgon pointed out on the Odd Lots podcast in February, Nvidia has also built a hard-to-replicate software ecosystem around its technology that gives it a “moat” that’s even harder to breach.
- First-quarter revenue $2.24 billion, down 38% from a year ago and up 22% from the previous quarter.
- Announced the GeForce RTX™ 4060 family of GPUs, bringing the advancements of NVIDIA Ada Lovelace architecture and DLSS, starting at $299.
- Launched the GeForce RTX 4070 GPU based on the Ada architecture, which enables DLSS 3, real-time ray-tracing and the ability to run most modern games at over 100 frames per second at 1440p resolution.
- Added 36 DLSS gaming titles, bringing the total number of games and apps to 300.
- Made path tracing available for the first time on a major gaming title through collaboration with CD PROJEKT RED on an update to Cyberpunk 2077.
- Expanded GeForce NOW’s game titles to more than 1,600, including the first Microsoft Xbox game, Gears 5.
Data Center
Nvidia’s data centers were the biggest contributor to revenue, a record $4.28 billion, up 14% from a year ago and up 18% from the previous quarter.
The company’s data center chips, including H100, Grace CPU, Grace Hopper Superchip, and Quantum 400 InfiniBand, carry higher average selling prices than its other chips. The division is home to the Nvidia Omniverse, the company’s vision for an industrial metaverse that provides simulations for developing artificial intelligence-based robots and autonomous vehicles.
- Launched four inference platforms that combine the company’s full-stack inference software with the latest NVIDIA Ada, NVIDIA Hopper™ and NVIDIA Grace Hopper™ processors.
- Announced that Google Cloud is the first cloud provider offering the new NVIDIA L4 Tensor Core GPU to accelerate generative AI applications.
- Expanded its partners offering new products and services based on the NVIDIA H100 Tensor Core GPU — including Amazon Web Services, Google Cloud, Microsoft Azure and Oracle Cloud Infrastructure.
- Partnered with ServiceNow to build generative AI across enterprise IT.
- Announced a collaboration with Medtronic to build an AI platform for medical devices.
- Joined with Dell Technologies in Project Helix to deliver full-stack solutions to help enterprises build and deploy trustworthy generative AI applications.
- Announced it is integrating NVIDIA AI Enterprise software into Microsoft’s Azure Machine Learning to help enterprises accelerate their AI initiatives.
NVDA’s dominance in GPUs and the emergence of AI technology is at home in its Data Center segment as demand for its H100 processor accelerates and as it expands its AI cloud service. NVDA is partnering with cloud computing giants like Microsoft (MSFT) and Google (GOOG) to enable customers to access its AI platform via a browser.
Visualization
The professional visualization division handles the omniverse’s visuals and “enterprise capabilities” also missed analysts’ expectations.
- First-quarter revenue $295 million, down 53% from a year ago and up 31% from the previous quarter.
- Announced NVIDIA Omniverse™ Cloud, a fully managed service running in Microsoft Azure, for the development and deployment of industrial metaverse applications.
- Expanded its collaboration with Microsoft to connect Microsoft 365 applications with Omniverse.
- Announced six new NVIDIA RTX™ GPUs for mobile and desktop workstations based on the Ada architecture.
Last year NVidia introduced Omniverse Cloud, the company’s first software- and infrastructure-as-a-service offering, with a comprehensive suite of cloud services for artists, developers and enterprise teams to access metaverse applications.
Automotive and Embedded.
During the quarter, the automotive division kicked in again. First-quarter revenue was a record $296 million, up 114% from a year ago and up 1% from the previous quarter.
- Announced its automotive design win pipeline has grown to $14 billion over the next six years, up from $11 billion a year ago.
- Announced that the world’s leading electric vehicle maker BYD will extend its use of NVIDIA DRIVE Orin™ across new models.
Last year Nvidia’s customers launched the all-electric Volvo EX90, powered by Nvidia Drive Orin and Xavier, and Polestar 3, the brand’s first SUV, which runs on the Nvidia Drive platform.
“These increases reflect growth in sales of self-driving solutions, computing solutions for electric vehicle makers and strength in sales of AI cockpit solutions,” Colette Kress, Nvidia’s chief financial officer, Colette Kress, wrote in an outlook for the company last quarter.
Crypto
Nvidia’s graphic processing units (GPUs) are widely used by ether miners. Once the Ethereum ETH chain switched from a proof-of-work to a proof-of-stake mechanism, miners no longer needed the chips and Nvidia was forced to find revenue elsewhere. That they have with a vengeance.
With the collapse of FTX NVidia said it is unable to determine what impact slipping demand for crypto mining had on the lower revenues.
Off the Charts Outlook
NVDA’s Q2 revenue guidance of $11.0 billion, plus or minus 2%, smashed estimates by around $4.0 bln, sparking off manic buying of the stock to new all-time highs and taking other AI-focused semiconductor stocks higher with it.
NVDA’s revenue actually decreased by about 13% in Q1, but the company’s Q2 guidance calls for a huge upswing in growth to 64% at the midpoint.
To be fair with NVDA’s sensational Q1 earnings report and Q2 revenue guidance that easily surpassed quarterly EPS and revenue estimates from analysts’ they rocked the companies’ own projections. NVDA’s Q1 guidance of $6.37-$6.63 bln badly underestimated the level of demand for its GPUs.
Mr. Huang said companies are “racing to apply generative AI into every product, service, and business process.”
NVDA also doesn’t seem to be contending with any serious supply chain issues or materials shortages, stating that it’s significantly increasing supply to meet the surge in demand.
Withs data center now a larger portion of NVDA’s overall mix, margin expansion and earnings growth are growing with it. NVDA guided for Q2 non-GAAP gross margin of 68.6%-70.0%, plus or minus 50 bps, compared to its Q1 non-GAAP gross margin of 66.8%.
Last quarter Nvidia Chief Executive Officer Jensen Huang fanned the hysteria with his compelling description of the opportunity. As he described it then in the earnings conference call, the world’s $1 trillion in installed data center infrastructure was already primed for extensive upgrades to accelerate computing and significantly cut energy and costs “by an order of magnitude.” Against this background, along came the generative AI wave, and suddenly companies had all the more incentive to make the move.
We’re seeing incredible orders to retool the world’s data centers. … You’re seeing the beginning of call it a 10-year transition to basically recycle or reclaim the world’s data centers and build it out as accelerated computing.
Jensen Huang
Exciting times but one needs to be cautious as in investor, as always. At current multiples, Nvidia has crushed even the bubbly valuations of 2021.
Understand the Risk
When tech stocks are hot, they are spectacular and way those that can in front of them as the shorts on NVDA found out today. That said be aware of the risk and what can happen to a crowded trade.
Bloomberg’s John Authers makes a valid point, “Nvidia’s success brings back bad memories of Cisco Systems Inc., a company that surged to extraordinary levels in the dot-com bubble on the promise that its routers offered exposure to the limitless upside of the booming internet. The internet flourished, but Cisco is now worth less than it was at its 2000 peak. “
Even if Nvidia’s total addressable market is now vastly larger than previously suspected, it will still have to contend with the near-term threat of recession (which could prompt its top customers to curb capital expenditures) and the longer -term threat of new competition, including from the likes of Microsoft Corp. and Alphabet Inc. potentially making their own chips. “They’re buying Nvidia’s chips and they’re also investing in R&D to make their own chips,” Bloomberg Intelligence’s Mandeep Singh said Wednesday on Bloomberg Television. “So clearly that is a threat.”
That said as we have tried to make clear in our coverage of NVidia it is not just one thing, it dominates multiple sectors. The most recent tech bubble was the pandemic bubble. Bloomberg reminds us of what happened to Peloton Interactive Inc. and Zoom Video Communications Inc. They “had essentially one good story to tell, and when the pandemic waned and life normalized, their valuations cratered.’ ‘
Very clear the market with Nvidia is pricing it on generative AI, and NVDA “will fall meaningfully from current altitudes if reality doesn’t deliver. But eventually, odds are that it would find another hype cycle to ride anew, potentially to even greater heights.”
About NVidia
Founded in 1993, NVIDIA has been a pioneer in accelerated computing. The company’s invention of the GPU in 1999 sparked the growth of the PC gaming market, redefined computer graphics, ignited the era of modern AI and is fueling the creation of the metaverse. NVIDIA is now a full-stack computing company
with data-center-scale offerings that are reshaping industry.
NVIDIA is the world’s engine of AI. Services from Amazon, Alibaba, Google, Microsoft, Meta, Pinterest,
Snap, Spotify, and 35,000 other companies are built and run on NVIDIA AI technologies.
Source: NVidia, AlphaStreet
From The TradersCommunity Research Desk