That scream that you just heard was the short sellers who gave up and have chased the stock ever higher overnight into this morning. What's a couple of hundred billion dollars in market capitalization between friends anyway? Closing in on $1T, it seems. High end semiconductor and AI (artificial intelligence) specialist Nvidia (NVDA) released the firm's fiscal first quarter results on Wednesday evening.
KAPOW !!!
For the three month period ended April 30th, Nvidia posted an adjusted EPS of $1.09 on revenue of $7.192B.
Despite year over year revenue contraction of 13.3%, the firm decisively beat Wall Street's expectations for both of these numbers. GAAP EPS printed at $0.82. The lion's share of the adjustments made were made for a $708M charge for share-based compensation. As strong as the quarter reported was relative to expectations, the guidance was just "over the top" strong, which is why the stock has run wild overnight. We'll get to all of that.
The Quarter Reported
As revenue contracted 13.3%, gross margin decreased from 65.5% to 64.6% on a GAAP basis, and from 67.1% to 66.8% once adjusted. Wall Street had been looking for an adjusted gross margin of 66.5%. Note that gross margin improved GAAP or not when looked at sequentially (q/q). On a GAAP basis, operating expenses were down 30% to $2.508B, leaving operating income of $2.14B (+15%) and net income at $2.043B (+26%).
Once adjusted, operating expenses were up 9% to $1.175B, while operating income popped 23% to $3.052B. This left adjusted net income of $2.713B, which was down 21%.
Segment Performance
- Data Center generated revenue of $4.284B (+14.2%), which was a new record for the segment, easily beating estimates.
- The firm launched four inference platforms that combine the full-stack inference software with the latest NVIDIA Ada, NVIDIA Hopper, and NVIDIA Grace Hopper processors.
- Nvidia announced it is integrating NVIDIA Enterprise software into Microsoft's (MSFT) Azure Machine Learning to help enterprises accelerate their AI initiatives.
- Announced that Google Cloud is the first cloud operator provider offering the new NVIDIA L4 Tensor Core GPU to accelerate generative AI applications.
- Expanded its partnering offering new products and services based on NVDA H100 Tensor Core GPU - including Amazon (AMZN) Web Services, Alphabet's (GOOGL) Google Cloud, Microsoft Azure and Oracle (ORCL) Cloud Infrastructure.
- Partnered with ServiceNow (NOW) to build generative AI across enterprise IT.
- Gaming generated revenue of $2.24B (-38.1%), which also easily beat estimates, and grew 22% sequentially.
- Automotive generated revenue of $296M (+114.5%), falling just short of estimates.
- Professional Visualization generated revenue of $295M (-52.6%), beating estimates, and up 31% sequentially.
Guidance
Here we go, gang. Buckle up. For the current quarter, Nvidia now sees total revenue of $11B, plus or minus 2%. Wall Street was looking for a cool $7.12B. No joke. Nvidia beat Wall Street like a drum on guidance. I don't know if I have in my entire career... seen a beat of this magnitude by a large firm with a huge following. The firm also sees adjusted gross margin of about 70%, plus or minus one half of one percent. Wall Street was between 66.5% and 67% on this metric. Another Titanic-sized beat. Finally, the firm expects operating expenses of $1.9B and $325M or so in CapEx, which was slightly above consensus.
Nvidia does not provide EPS guidance. However, based on the guidance provided, and reading through as much material as I can find, it appears that projected adjusted fiscal Q2 EPS could print anywhere from as low as $1.75 to as high as $2.15. Wall Street was down around $1.05 for this number. Just wow.
Fundamentals
For the quarter reported, Nvidia generated operating cash flow of $2.911B (+29.4%), while spending $248M on the purchase of property and equipment and another $20M in principal payments related to such purchases. This left the firm with free cash flow of $2.643B (+52.2%). Out of this, the firm paid out $99M in dividends to shareholders. Nvidia did not repurchase any common stock during the quarter. but still has more than $7B worth of repurchases remaining under its current authorization.
Turning to the balance sheet, the firm ended the period with a cash position of $15.32B, and inventories of $4.611B. This puts current assets at $24.883B. Current liabilities add up to $7.26B, including $1.25B in short-term debt. That leaves the firm with a current ratio of 3.43 which is incredibly strong. Even after omitting any value for inventories, Nvidia's quick ratio stands at 2.79. Again... just wow.
Total assets amount to $44.46B, including $5.841B. At just 13.1% of total assets, this is not seen in any way as a problem. Total liabilities less equity comes to $19.94B. This includes long-term debt of $9.704B. This balance sheet is in golden shape. The "current" situation is very strong, while the firm could pay off its entire debt-load out of pocket a time and half if it had to.
Wall Street
Since Nvidia released these results and made these projections, I have found 22 sell-side analysts that are rated at four stars or better (by TipRanks) and have opined on the stock. Among these 22 analysts, after allowing for changes, there are 21 "Buy" or buy-equivalent ratings and one "hold" rating. The average target price across these 22 analysts is $467.81 with a high of $600 (Hans Mosesmann of Rosenblatt Securities) and a low of $390 (Ross Seymore of Deutsche Bank). Once omitting these two as potential outliers, the average target across the other 20 drops to $465.10.
My Thoughts
Incredible. I don't think I can be emphatic enough in describing my astonishment at how far apart Wall Street and the firm were on how well sales are running for the current quarter. I mean, we all knew that valuation was getting almost crazy... yet Wall Street hadn't caught on? As Doug Kass often says..."Group think or group stink?"
Performance was strong. Cash flows are strong. The balance sheet is strong. Guidance is many times simply being referred to as strong. Artificial intelligence is the drug and Nvidia is the dealer. Advanced Micro Devices (AMD) is a player and that stock is up almost 9% on Nvidia's report, but Nvidia is THE dealer.
Just look at this trend. They say that the trend is your friend. In this case, it is indeed. My guess is that NVDA will approach the upper trendline of this price channel on Thursday. Though I made a small sale ahead of this release and that was a three digit win, we are now approaching almost three and for some.. four bagger territory. I will reluctantly sell a few shares today.
My price targets this year of $280 and $305 have been obliterated. For that reason, I am going up to $475 on my balance after making this morning's sale and then we'll see if any kind of recognizable pattern develops. Time to get out of the way and see how far this Jensen Huang can run. I don't think I want to sell covered calls against this stock either. Not until we see the shares consolidate anyway.
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