Key Insights You Need to Know About Nvidia's Latest Earnings Report

Analysts Notebook joined discussion · Feb 22, 2024 20:58

$NVIDIA (NVDA.US)$ surpassed Wall Street's expectations for both earnings and sales in its fourth fiscal quarter report, and projected higher-than-anticipated revenue for the current quarter despite already high growth forecasts. Following the report, Nvidia's stock price increased by roughly 10% in after-hours trading.

During an earnings call, company executives talked about how artificial intelligence (AI) has driven their data center revenue to unprecedented highs, the potential in AI enterprise software, the extensive AI ecosystem of the company, and the decrease in revenue coming from China.

Key Insights You Need to Know About Nvidia's Latest Earnings Report

Nvidia's Q4 Earnings

Nvidia announced that for the quarter ending January 28, its revenue soared to $22.10 billion, a substantial rise from $6.05 billion in the previous year. Net income also saw a significant boost, climbing to $12.29 billion from $1.41 billion, with diluted earnings per share increasing to $4.93 from 57 cents a year prior. All these figures comfortably exceeded what analysts had predicted.

Nvidia's gross margin for the fourth quarter was 76%, up from 63.3% in the year-ago period. Nvidia's Chief Financial Officer, Colette Kress, attributed the company's financial upturn to the expansion of their data center operations, primarily fueled by the adoption and performance of Nvidia's Hopper GPU computing platform.

Nvidia has projected that its revenue for the fiscal first quarter will be around $24 billion, give or take 2%, a forecast that surpasses the consensus estimate from analysts. Additionally, the company anticipates a marginal increase in gross margin for the current quarter compared to the fourth quarter's numbers.

Data Center Business

Nvidia's Data Center business achieved $18.4 billion in sales during the fourth quarter, significantly benefiting from the surge in artificial intelligence. This represents a 409% increase from the $3.62 billion reported in the same quarter last year, surpassing analysts' expectations of $17.06 billion for the quarter.

We estimate in the past year approximately 40% of data center revenue was for AI inference," Colette Kress, Nvidia's Chief Financial Officer (CFO) reported.

Nvidia's data center division has experienced significant growth, especially in the last three quarters, positioning it as the dominant supplier of computer chips for AI research and products in the current market. The performance of Nvidia's Data Center business, which produces the H100 graphics cards used for AI applications like OpenAI's ChatGPT, is being closely monitored by investors.

Challenges & Uncertainties

• U.S. Restrictions

Nvidia reported that its data center revenue suffered due to the latest U.S. export limitations on high-end AI semiconductors to China.

Growth was strong across all regions except for China, where our data center revenue declined significantly following the US government export control regulations imposed in October," Colette Kress, Nvidia's CFO said.

Declines related to the U.S. restrictions on chip exports to China have been of concern for investors, though analysts have indicated that these concerns could be overblown.

We understood what the restrictions are, reconfigured our products in a way that is not software hackable in any way, and that took some time so we reset our product offering to China. Now we're sampling to customers in China."

• The AI Race

NVIDIA has experienced significant financial success, but it operates in a highly dynamic and competitive semiconductor industry that demands constant innovation and substantial investment in research and development. The company's forward-looking statements indicate an emphasis on launching new products and innovations to sustain its leadership in the market.

What Analysts & Management Say

• On the call with analysts, Nvidia CEO Jensen Huang responded to investor concerns regarding whether the company can maintain its current growth rate or sustain the same level of sales throughout the entire year.

Fundamentally, the conditions are excellent for continued growth in 2025 and beyond. The demand for the company's GPUs will remain high due to generative AI and an industry-wide shift away from central processors to the accelerators that Nvidia makes."

• "Few things are more certain than death, taxes, and Nvidia beats on earnings," remarked Carson Group strategist Ryan Detrick in emailed comments.

• Morgan Stanley's Moore sees additional catalysts beyond earnings, expecting insights into new products at the March graphics technology conference.

• Even with what some might consider steep valuations — Nvidia's price-to-sales ratio stands at a staggering 40 to 1 — analysts are still positive about the prospects of the company's shares. Bloomberg data shows that out of 66 analysts, 60 recommend buying the stock, leading to a consensus buy rating. The average price target set by these analysts aligns closely with the current market price, indicating that the stock might be priced appropriately.