Nvidia (NASDAQ: NVDA) has exceeded expectations and left Wall Street stunned with its impressive guidance in its recent fiscal 2024 first-quarter results. The company’s outstanding performance led to a surge of nearly 25% in its stock price, bringing its year-to-date gains to a remarkable 166%. This begs the question: Is it too late for investors to jump on the Nvidia bandwagon? Let’s delve into the reasons behind the market’s enthusiastic response to Nvidia’s quarterly report before attempting to answer that question.
Nvidia’s Q1 2024 revenue stood at $7.2 billion, surpassing the company’s initial guidance of $6.5 billion by a significant margin. Surprisingly, the adjusted earnings per share for the quarter rose by 28% compared to the previous year, reaching $0.82. This impressive bottom-line growth can be attributed to Nvidia’s exceptional pricing power in the data center GPU (graphics processing unit) market. The demand for Nvidia’s data center GPUs, which are high-priced and sought after for artificial intelligence (AI) infrastructure deployment, has been soaring. Companies across the globe are racing to implement AI applications for training and inferencing purposes, leading to increased demand for Nvidia’s flagship Hopper and Ampere architecture GPUs.
During Nvidia’s latest earnings conference call, CFO Colette Kress highlighted the rush by cloud service providers (CSPs) to adopt Nvidia’s GPUs for both enterprise and consumer AI applications. Several CSPs, including Microsoft Azure, Google Cloud, and Oracle Cloud Infrastructure, have announced the availability of Nvidia’s H100 on their platforms. Furthermore, upcoming offerings at AWS and general availability at emerging GPU specialized cloud providers like CoreWeave and Lambda demonstrate the widespread adoption of Nvidia’s AI chips. The robust demand for these chips is reflected in Nvidia’s data center revenue, which surged by 14% year over year to a record-breaking $4.28 billion in the last quarter.
Looking ahead, Nvidia anticipates a staggering $11 billion in revenue for the current quarter, which is at least 50% higher than analysts’ expectations of $7.2 billion. The company also forecasts a non-GAAP gross margin of 70%, a significant increase compared to the 46% reported in the same quarter of the previous year. These projections indicate a potential 64% year-over-year surge in revenue, suggesting that Nvidia’s earnings are poised to experience substantial growth in the coming quarter.
Given Nvidia’s outstanding guidance, it is highly likely that the stock will sustain its impressive rally. The company’s primary data center catalyst, generative AI, is still in its early stages of growth. Polaris Market Research estimates that the generative AI market could witness an annual growth rate of 34% over the next decade, reaching $200 billion in annual revenue by 2032.
During the earnings call, Nvidia’s management emphasized that generative AI is driving exponential growth in compute requirements and a rapid transition to Nvidia accelerated computing. This accelerated growth in the generative AI space will undoubtedly generate greater demand for Nvidia’s GPUs, as they play a vital role in the proliferation of this technology. Furthermore, the demand for chips capable of handling AI workloads is projected to increase from under $17 billion in 2022 to over $227 billion annually by 2032. With Nvidia’s strong position in the AI chip market, there is ample room for growth in its data center business. As a result, analysts have raised their growth expectations for Nvidia.
Considering these factors, it appears that Nvidia still has the potential to deliver further upside even after its remarkable performance in 2023. However, investors should be aware that the stock is currently trading at an extremely high multiple of 202 times trailing earnings. Nevertheless, the company’s guidance and long-term prospects justify this valuation, especially given its anticipated revenue and earnings growth. Nvidia’s forward earnings ratio of 53 suggests a significant improvement in the company’s bottom line, which aligns with the substantial margin gains it expects to achieve. Although the stock may seem expensive, the opportunity to benefit from the widespread adoption of AI makes it worth considering as an investment.
In conclusion, Nvidia’s exceptional quarterly results and impressive guidance have left investors wondering if it is still a viable investment option. Despite the stock’s high valuation, its robust growth prospects in the data center market and the rising demand for AI chips make it an attractive choice for investors looking to capitalize on the adoption of AI technology.
Disclaimer: The following content does not constitute financial advice. Always do your own research before making any investment decisions.