ii view: Nvidia rallies again as world's favourite AI stock smashes forecasts
Supplying high-powered computer chips to run artificial intelligence software and aiding innovation across areas such as drug development. We assess prospects.
22nd February 2024 11:58
by Keith Bowman from interactive investor
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Fourth-quarter results to 28 January
- Revenue up 265% year-over-year to $22.1 billion
- Adjusted earnings per share up 486% to $5.16
- Cash dividend of $0.04 per share, unchanged from the previous quarter
Guidance:
- Expects first-quarter sales of around $24 billion
Chief executive Jensen Huang said:
“Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations.”
“Our Data Centre platform is powered by increasingly diverse drivers — demand for data processing, training and inference from large cloud-service providers and GPU-specialized ones, as well as from enterprise software and consumer internet companies.”
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ii round-up:
NVIDIA Corp (NASDAQ:NVDA) has detailed fourth-quarter sales and earnings that smashed already aggressive Wall Street forecasts, with the computer chip maker's sales outlook also comfortably exceeding expectations.
Record demand for its chips used in data centres to run artificial intelligence (AI) software helped overall sales climb 22% from the previous quarter, or 265% from the year ago quarter to $22.1 billion. That's fuelled a near five-fold increase in adjusted earnings year-over-year to $5.16 per share. Nvidia predicted sales for the current first quarter of $24 billion, surpassing analyst estimates of $22.2 billion.
Shares in the Nasdaq 100 company soared 10% in after-hours US trading having already rocketed more than 200% over the last year. That’s comfortably ahead of a 110% gain for fellow chip maker Broadcom Inc (NASDAQ:AVGO) over that time and ahead of 60% rises for cloud data centre providers and customers Microsoft Corp (NASDAQ:MSFT) and Google owner Alphabet Inc Class A (NASDAQ:GOOGL). The Nasdaq 100 itself is up 45% over the last year.
Nvidia’s data centre related revenues rose 27% from the prior quarter and by 409% from Q4 last year to a record $18.4 billion. Industries from drug developers to financial service companies continued to fuel demand for its high-powered chips, which come with Nvidia’s own Cuda software, setting them apart from rivals and boosting profit margins.
Sales for its once core gaming related chips climbed 56% year-over-year to $2.9 billion. Automotive related sales improved 8% to $281 million.
Broker Morgan Stanley reiterated its ‘overweight’ stance on Nvidia shares post the results, raising its fair value share price estimate to $795 from $750.
ii view:
Started in 1993 by current CEO Jensen Huang, Nvida’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 fuelling the boom in the PC gaming market. Today, its stock market value of over $1.7 trillion compares to rival chipmakers such as Advanced Micro Devices Inc (NASDAQ:AMD) and Intel Corp (NASDAQ:INTC) each at under $300 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, reducing Nvidia sales. The chipmaker’s exposure to Asia and supply chain requirements should not be forgotten. Questions regarding appropriate tech valuations persist, while governments worldwide have concerns about the potential power of AI and its impact on human society.
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More favourably, exposure to the potentially massive theme of AI is clearly evident, with global data centre infrastructure moving from general purpose to accelerated computing, as companies push to apply generative AI into their products and services. Nvidia’s supply chain management has also proved robust so far. The potential for AI innovation including new ground-breaking medicines should not be overlooked, while its experienced founder Jensen Huang continues to lead the company.
There's clearly a lot of good news baked into the valuation, and some caution remains sensible given the incredible share price performance. But sales momentum at Nvidia's core data centre division continues to impress and exceed expectations, and it's quickly built a reputation as one of the 'go to' stocks to play the AI theme. There's little here to suggest that will change any time soon.
Positives:
- Exposure to growth in data centres and AI
- Founder continues to head the company
Negatives:
- Uncertain economic outlook
- US and China tensions
The average rating of stock market analysts:
Buy
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