Interactive Investor

ii view: Nvidia earnings blast past Wall Street forecasts

This US computer chip maker has become the go-to company to invest in artificial intelligence or AI. We assess prospects.

24th August 2023 10:14

by Keith Bowman from interactive investor

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Second-quarter results to 30 July

  • Revenue up 101% year-over-year to $13.51 billion
  • Adjusted earnings per share up 429% to $2.70
  • Cash dividend of $0.04 per share, unchanged from the previous quarter

Founder and chief executive Jensen Huang said: “During the quarter, major cloud service providers announced massive NVIDIA H100 AI infrastructures. Leading enterprise IT system and software providers announced partnerships to bring Nvidia AI to every industry. The race is on to adopt generative AI.”

ii round-up:

Computer chip maker NVIDIA Corp (NASDAQ:NVDA) detailed sales and earnings that beat Wall Street forecasts as demand for its microchips used in data centres to run artificial intelligence (AI) software soared. 

Second-quarter revenues hit a record $13.51 billion (£17.1 billion), pushing adjusted earnings up 429% from this time last year to $2.70 per share and way beyond analyst forecasts nearer to $2.10 per share. 

Shares for the Nasdaq 100 company rose by more than 6% in afterhours US trading having already gained by more than 200% year-to-date. Shares for fellow chip market Intel (NASDAQ:INTC) are up by 29% during 2023, while shares for cloud data-centre providers and customers of Nvida, Microsoft Corp (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), are up by 36% and 61% respectively. 

Data centre-related revenues rose 171% from the same quarter last year to $10.32 billion, as customers looked to buy Nvidia’s A100 and H100 AI chips used to power applications such as ChatGPT. Nvida’s chips also come with its own Cuda software, helping to set them apart from rivals such as Advanced Micro Devices (NASDAQ:AMD) and boosting profit margins. 

Sales for its once core gaming-related chips rose 22% year-over-year to $2.49 billion. Automotive-related sales gained 15% from a year ago to $253 million. 

Nvida expects overall sales for the current ongoing third quarter of around $16 billion, a potential rise of 170% from the same quarter last year.  

Broker Morgan Stanley reiterated its ‘overweight’ stance on Nvidia shares post the results, upping its fair value share price estimate to $630 per share from a previous $500 per share.  

ii view:

Started in 1993, Nvida’s chip computing abilities feed into areas from data-centre servers hosting AI applications to gaming consoles, self-driving cars and robotics. Headquartered in Santa Clara, California, its stock market value of over $1 trillion compares to rival chip makers such as Broadcom (NASDAQ:AVGO) and ASML Holding NV (EURONEXT:ASML) each at under $400 billion. 

For investors, increased geopolitical tensions between the US and China has seen each country become increasingly reluctant to sell their chip products to one another, potentially reducing sales. Questions over appropriate tech valuations persist, Nvidia’s exposure to Asia and supply chain requirements warrants consideration, as does government concern regarding the increasing power of major tech companies and the power of AI. 

More favourably, exposure to growth arenas such as AI is firmly evident, with global data-centre infrastructure moving from general purpose to accelerated computing as companies push to apply generative AI into products and services. Its supply chain management has proved robust to date, a new $25 billion share buyback programme was recently approved, while the group’s founder, Jensen Huang, with all his many years of experience, continues to lead the company.

In all, and while the debate over an appropriate valuation will persist, momentum for now looks to remain in Nvidia’s favour with long-term fans likely to stay 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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