Nvidia shatters earnings expectations, rankings continue to dominate AI

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Nvidia shatters earnings expectations, rankings continue to dominate AI

In the most anticipated quarter of this earnings season, Nvidia outperformed even lofty expectations for results and profits. What’s even better is that CEO Jensen Huang’s big revenue guidance and broader vision reinforced the notion that companies and countries are partnering with the AI chip powerhouse to transform data centers. Traditional data worth 1 trillion USD to accelerated computing. According to data provider LSEG, formerly known as Refinitiv, revenue in the first quarter of fiscal 2025 rose 262% year-over-year to $26.04 billion, far exceeding analyst forecasts. total is 24.65 billion USD. The company previously set a revenue target of $24 billion, plus or minus 2% – so that’s a major breakthrough. Adjusted earnings per share rose 461% to $6.12, beating the LSEG-compiled consensus estimate of $5.59. The 78.9% adjusted gross margin also beat the Street estimate of 77.2%, according to market data platform FactSet. The company guided gross margin to 77%. plus or minus 50 basis points. In addition to the positive results, Nvidia announced a 10-for-1 stock split. While stock splits don’t technically create value, they tend to have a positive impact on the stock . The company said the split was to “make it easier for employees and investors to access stock ownership.” We commend Nvidia for doing this and will continue to press other companies to do the same. Nvidia most recently split its shares in July 2021 at a 4-for-1 ratio. In after-hours trading, it was no surprise to see Nvidia shares skyrocket. Nvidia Why we own it: Nvidia’s high-performance graphics processing units (GPUs) are the main driving force behind the AI revolution, powering the accelerating data centers being built. built rapidly around the world. But this isn’t just a story about hardware. Through its Nvidia AI Enterprise service, Nvidia is in the process of building a potentially giant software business. Competitors: Advanced Micro Devices and Intel Last purchased: August 31, 2022 Started: March 2019 Bottom line What airbags? Going into the quarter, it looked like the only thing that could hold Nvidia back was a product transition-related slowdown as customers delayed orders for H100 and H200 GPUs (graphics processing units) in anticipation of the platform. Outstanding Blackwell chip platform. As you can see from Nvidia’s massive growth and success guidance, that’s not happening at all, and demand is expected to exceed supply for quite some time. If this story is to be repeated, here’s something to keep in mind for next time so these concerns don’t derail you from a solid long-term thesis: Jensen explained on a post-earnings conference call that customers are still too early in their journey. Construction forces them to continue buying chips to keep up with the current technological arms race. And technology leadership is everything. “There will be a lot of chips coming out and they just need to keep building and if you want, average the performance your way. So that’s the smart thing to do,” the CEO said. . More broadly, we didn’t hear anything Wednesday night to change our long-term view of Nvidia being the driving force behind the current AI industrial revolution. Here’s how Jensen explains the change that’s taking place: “Over the long term, we’re completely redesigning the way computers work. And this is a fundamental change. Of course, it’s compared to other platform changes in the past, but time will make it clear that this is much more profound than previous platform changes. And the reason is because computers are no longer just computers controlled by commands anymore. Jensen goes on to mention how the computer not only interacts with us but also understands what we mean, what we intend to ask it to do, and it has the ability to reason, Iterative reasoning to process, plan, and come back with a solution. The billions and billions of dollars spent on accelerated computing is why we own Nvidia for the long term and don’t try to trade back and forth on every title. By the way, another bearish story we often hear is that the custom chips that all the major cloud companies are producing are a threat to Nvidia’s leadership. Jensen doesn’t see it that way because his platform offers the highest performance at the lowest total cost of ownership. It’s an unbeatable value proposition. NVDA YTD mountain Nvidia YTD Positive results and outlook, upbeat commentary and a stock split sent Nvidia stock up about 6% to above $1,000 per share for the first time. However, we don’t think the benefits end here. We are increasing our price target from $1,050 to $1,200 and maintaining our 2 rating, meaning we view this as a buy on a pullback. Quarterly results Growth was driven by all customer types, but business and consumer internet companies led the way. Big cloud companies accounted for about 40% of data center revenue in the quarter, so when you see companies like Oracle and Club names Amazon, Microsoft and Alphabet raise their capital spending outlooks, watch out. understand that the majority of those dollars will flow toward Nvidia. And, there’s a good reason for it. During the call, Nvidia CFO Colette Kress estimated that for every $1 spent on Nvidia AI Infrastructure, the cloud provider has the opportunity to earn $5 in immediate GPU storage revenue in 4 year. One customer that came calling during the quarter was Tesla, which is expanding its training AI cluster to 35,000 H100 GPUs (graphics processing units). Nvidia says Tesla’s use of Nvidia AI infrastructure has “paved the way” for the “breakthrough performance” of its fully self-driving version 12. (Full self-driving, or FSD, is how Tesla markets the Advanced driver assistance software. ) Interestingly, Nvidia sees automotive as a huge vertical this year, an opportunity generating billions in revenue from on-premises and cloud-based consumption. . Another highlight was Meta’s announcement of Llama 3, its major language model. It was trained on a cluster of 24,000 H100 GPUs. Kress believes that as more internet consumers use synthetic AI applications, Nvidia will see more growth opportunities. The Tesla and Meta clusters are examples of what Nvidia calls an “AI Factory”. The company believes that “these next-generation data centers host advanced end-to-end accelerated computing platforms where data comes in and information emerges. Nvidia also points to sovereign AI as the source The company defines sovereign AI as a “nation’s ability to produce artificial intelligence using its infrastructure, data, workforce, and business networks.” own.” Kress expects sovereign AI revenue to reach high single digits this year from zero last year. The H100 is improving but remains limited on the H200. Even with the move to Blackwell , Nvidia predicts demand for Hopper will be around for quite a while “Everyone is anxious to get their infrastructure online, and the reason is because they’re saving money. and make money, and they want to do it as soon as possible,” the company said. In other words, customers will take whatever they can get. But look for Blackwell’s revenue at the end of the year today, probably a very meaningful number, the company explained Blackwell production is already underway and shipments are expected to begin in the second quarter of fiscal 2025, accelerating into the third and fourth quarters. customers will have fully operational data centers in the fourth quarter. Software was mentioned more than two dozen times on the conference call. And to sum up, Nvidia said in the last quarter’s call that software and Their services reach an annual revenue rate of $1 billion. These are highly profitable businesses with recurring revenue and continue to be an important area to watch in the coming quarters China, the company said it began promoting new products manufactured specifically for the region that do not require export control licenses. The US government has placed restrictions on the sale of the fastest chips because fear they will be used by the Chinese military. However, it appears that China is not expected to be the revenue driver it once was as restrictions on Nvidia’s technology have made the environment more competitive. The company’s second-quarter financial guidance should dispel market concerns that some kind of AI spending “air pocket” is forming. For the current second quarter, Nvidia expects revenue of $28 billion, plus or minus 2%, above the consensus estimate of $26.6 billion. Adjusted gross margin is expected to be 75.5%, plus or minus 50 basis points, above estimates of 75.2%. Capital Returns Nvidia increased its quarterly dividend by 150%, which is good but the annual yield is negligible for the investment case. The stronger impact was the $7.7 billion worth of shares the company repurchased in the fiscal first quarter. (Jim Cramer’s charitable foundation is long NVDA. See here for a full list of stocks.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive trade alerts before Jim conduct transaction. 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Jensen Huang, co-founder and chief executive officer of Nvidia Corp., during the Nvidia GPU Technology Conference (GTC) in San Jose, California, U.S., on Tuesday, March 19, 2024.

David Paul Morris | Bloomberg | beautiful images