ii view: Nvidia hurtling toward record high

This chipmaker offers exposure to some exciting areas of growth, but are prospects already priced in?

Fourth-quarter results to 26 January 2020

• Revenue up 41% to $3.11 billion
• Earnings per share up 136% to $1.89

Founder and chief executive Jensen Huang said:

“Adoption of Nvidia accelerated computing drove excellent results, with record data centre revenue. Nvidia RTX ray tracing is reinventing computer graphics, driving powerful adoption across gaming, VR and design markets, while opening new opportunities in rendering and cloud gaming. Nvidia AI is enabling breakthroughs in language understanding, conversational AI and recommendation engines ― the core algorithms that power the internet today. And new Nvidia computing applications in 5G, genomics, robotics and autonomous vehicles enable us to continue important work that has great impact.

“We are well positioned for the greatest technology trends of our time.”

ii round-up:

Chipmaker Nvidia (NASDAQ:NVDA), whose products are used by gamers and data centre providers, reported quarterly results which pleased Wall Street investors. 

Despite outlining a $100 million near-term potential hit from the coronavirus, sales to data centre providers rose by 33% in January alone, with total sales or revenue for the fourth quarter up by 41% to more than $3 billion. 

First-quarter management estimates or guidance surpassed analyst expectations. The share price rose by more than 5% in late US market trading. 

Sales to data centre providers jumped by over 40% to $968 million in the final quarter. So-called hyperscale customers such as Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL), although not named, are thought to be fuelling the demand. 

Fellow chipmakers Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD) both recently reported vibrant data centre business. Conversational Artificial Intelligence or AI is considered to be helping to power growth. 

Video gaming and data centre hardware provide its two core business segments. Nvidia also operates the two smaller divisions of Professional Visualization and Edge Computing. 

ii view:

Nvidia describes the Graphics Processing Unit (GPU) as the computer brain at the intersection of virtual reality, high performance computing and artificial intelligence. 

Growth prospects for artificial intelligence and high-performance computing look enticing, but the exact company winners in these arenas are far from certain. Rivals Intel and AMD are competing hard to keep their names in the frame, and the importance of China in the wider supplier chain also warrants consideration, with the coronavirus outbreak underlining sensitivities. 

For investors, a forward price/earnings ratio approaching 50, in line with rival AMD but marginally above its own three-year average, offers some caution. An approximate 70% of sales generated in Asia add to unease given the coronavirus outbreak. But these latest results do outline serious growth, with Nvidia’s stock market value at around $180 billion still comfortably below that of Intel’s at over $250 billion. 

Positives: 

• Exposure to potential growth areas such as AI
• Cash at the end of the fourth quarter of $10.9 billion

Negatives:

• Reduced Q1 revenue forecast due to coronavirus
• A price to net asset ratio of 18 times, above the three-year average of 12 times

The average rating of stock market analysts:

Buy