ii view: Nvidia beats forecasts but cautious on China
Sparking growth in the PC gaming market and now offering the building blocks for an artificial intelligence revolution. We assess prospects.
22nd November 2023 10:46
by Keith Bowman from interactive investor
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Third-quarter results to 29 October
- Revenue up 206% year-over-year to $18.12 billion
- Adjusted earnings per share up 593% to $4.02
- Cash dividend of $0.04 per share, unchanged from the previous quarter
Founder and chief executive Jensen Huang said:
“Our strong growth reflects the broad industry platform transition from general-purpose to accelerated computing and generative AI.”
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ii round-up:
Computer chip maker NVIDIA Corp (NASDAQ:NVDA) detailed sales and earnings which comfortably beat Wall Street forecasts, but offered a cautious outlook given recent US government moves to restrict exports to countries such as China.
Record demand for its chips used in datacentres to run artificial intelligence (AI) software, helped overall sales triple from a year-ago to $18.12 billion, fuelling a near six-fold increase in adjusted earnings to $4.02 per share.
Shares in the Nasdaq 100 company fell around 1% in after-hours US trading having already gained more than 240% year-to-date. Fellow chip maker Advanced Micro Devices Inc (NASDAQ:AMD) is up 85% in 2023, while cloud datacentre providers and customers of Nvida, Microsoft Corp (NASDAQ:MSFT) and Amazon.com Inc (NASDAQ:AMZN), are up by 55% and 71% respectively. The Nasdaq 100 index is up 45% year-to-date.
Data Centre related revenue soared 279% year-over-year, or 41% from the previous quarter to a record $14.51 billion, as customers bought Nvidia’s A100 and H100 AI chips used to power applications like ChatGPT.
Nvida’s chips also come with its own Cuda software, helping set them apart from rivals such as Intel Corp (NASDAQ:INTC) and boosting profit margins.
Sales of its once core gaming related chips rose 81% year-over-year to $2.86 billion. Automotive related sales gained 4% to $261 million.
Nvidia is forecasting overall fourth quarter sales to late December of around $20 billion, making for a potential year-over-year gain of 230%.
Broker Morgan Stanley reiterated its ‘overweight’ stance on Nvidia shares post the results, upping its fair value share price estimate to $603 per share from $600.
ii view:
Founded in 1993, Nvidia’s chip computing abilities feed into areas from data centre servers hosting AI applications to gaming consoles, self-driving cars, and robotics. Nvidia credits its invention of the Graphics Processor Unit (GPU) in 1999 for sparking the growth of the PC gaming market. Today, its stock market value of over 1.2 trillion dollars compares to rival chip makers such as Broadcom Inc (NASDAQ:AVGO) and Qualcomm Inc (NASDAQ:QCOM), each at under $450 billion.
For investors, heightened geopolitical tensions between the US and China has seen each become increasingly reluctant to sell their advanced technology products to each other, potentially reducing Nvidia sales. The chipmaker’s exposure to Asia and supply chain requirements should not be forgotten. Questions regarding appropriate tech valuations persist, while the concerns of many governments worldwide regarding the potential power of AI and its impact on human society warrant deep consideration.
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On the upside, exposure to the potentially huge AI industry is clearly evident, with global data centre infrastructure moving from general purpose to accelerated computing, as companies push to apply generative AI into products and services. Relations between the US and China may have warmed given a recent meeting between its two leaders. Nvidia’s supply chain management has proved robust to date, while its experienced founder Jensen Huang continues to lead the company.
For now, and while grounds for caution exist, customer demand for its products remains strong and the business is exposed to a long-term trend which is still in its infancy. As such, fans of tech stocks will likely remain optimistic.
Positives:
- Exposure to growth in data centres and AI
- Returned $10.44 billion to shareholders over 2022
Negatives:
- Uncertain economic outlook
- US and China tensions
The average rating of stock market analysts:
Buy
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