Arthur Fonzerelli wore a leather jacket all the time. He was cool too. You may have noticed that whenever I have named my favorite CEOs over the years, either in print or on television, I have always included Nvidia's (NVDA) Jensen Huang, along with three or four others who almost always also include Lisa Su at Advanced Micro Devices (AMD) . Last night was Jensen's turn at bat. Huang did not just hit a grand slam, that ball still hasn't come down.
On Wednesday night, Nvidia reported the firm's third quarter financial performance. For the reporting period, Nvidia posted adjusted EPS of $1.17, and GAAP EPS of $0.97, easily beating Wall Street by either metric. The firm generated $7.1B in revenue over the three months, up 50.1% year over year, and also well above consensus view. The revenue number was good for a new record as were revenue numbers for two distinct lines of business... Gaming and the Data Center.
Company-wide, using adjusted data, gross margin expanded from 65.5% a year ago to 66.7% last quarter to 67% for Q3. Operating income increased 70% year over year and 10% sequentially to $3.386B. This led to adjusted earnings growth of 60% on the already mentioned 50% revenue growth. Roll up your sleeves. Let's get to work.
Gaming - Third quarter revenue (a new record) of $3.22B was good for 42% growth and beat expectations. The firm has announced new RTX capabilities headed for high-profile titles, as well as new RTX accelerated AI features in Adobe (ADBE) applications.
Data Center - Third quarter revenue (a new record) of $2.936B, which was up 55% from a year ago, and up an incredible 24% from just last quarter. Obviously, this business also beat expectations. The firm has announced plans to build Earth-2, an AI supercomputer dedicated to addressing global climate change. The firm has also announced the general availability of NVIDIA AI Enterprise, which is a suite of software tools enabling companies running VMware (VMW) vSphere to virtualize AI workloads. The firm also shared news that the supercomputer at the U.S. Department of Energy's National Lab will run on Nvidia's accelerated computing program.
Professional Visualization - Revenue of $577M was good for growth of 144%. This number also beat Wall Street. The firm here has announced the general availability of Nvidia Omniverse Enterprise with the addition of AR, VR, and multi-GPU rendering.
Automotive - Quarterly revenue amounted to $135M, +8% y/y. This is the one spot where Nvidia fell short of consensus. I think however, that the lackluster performance here has more to do with automotive industry slowdowns than with Nvidia. Think autonomous driving is coming not just to consumers but to any business of municipality operating a fleet of vehicles, probably within a decade? Me too. Nvidia.
OEM & Other - Revenue here came to $234M, up 21% and ahead of consensus. The driver for this opaque unit was Ethereum mining, which accounted for almost half of the unit's sales.
For the current quarter, the firm is guiding revenue toward $7.4B, give or take 2%. This is well above the $6.86B that Wall Street was looking for, and would be good for growth of 48% if accurate. The firm also sees adjusted gross margin of 67%, which is above the 66.4% that had been consensus.
On Wednesday evening, CFO Colette Kress stressed that the company is still committed to its proposed $40B acquisition of UK chip maker Arm Holding, which was announced way back in September of 2020, despite regulatory or antitrust concerns raised by the FTC in the U.S., as well as by authorities in both the UK and China. Most smart people I talk to seem to not believe that this deal will ultimately be completed. For that reason, I think the stock will trade for the medium-term future as if there is no deal.
No, not the Metaverse. The Omniverse. The talk this morning that has jaws dropping was Jensen Huang's description last night of the Omniverse, or more specifically... "Omniverse Avatar."
Huang said: "We built Omniverse Avatar to make it easy for people to integrate some amazing technology from consumer vision, speech recognition, natural language understanding, gesture recognition, facial animation synthesis, recommender systems, all of that integrated into one system and running in real time."
In other words, Huang is describing intelligent, virtual robots that will perform many rudimentary or repetitive functions. Huang suggests these avatars could perform customer service, check in or check out. During the address, Huang suggests that an avatar might cost an employer something like $1K per year. Now, not thinking like a humanitarian, but like a corporation managing margin, think about the possibilities. Cashiers. Warehouse work. Fast food. How about autonomous drivers? Would you feel better about your autonomously driven vehicle if it felt like a 'cabbie' was doing the driving?
Now back to that $1K 'employee'.... no sick days, never late, never tired. No benefits. Not that this suggested price will even be close to whatever it will be once a reality, but it will likely be a lot less than employing a human being, and probably a lot less prone to error. Not that I want to put anyone out of work, but if its' coming, one might as well prepare. Huang also suggests that we see the beginnings of this future within less than five years. Now, that's deflationary.
Nvidia' cash balance (cash, equivalents, ST investments) is up dramatically over the past nine months as are current assets and total assets. Current assets are running at about eight times current liabilities. As long-term debt has doubled, total assets are roughly 2.4 times total liabilities less equity. This balance sheet is in absolutely pristine condition.
Readers will see that NVDA is breaking out of a bullish flag pattern built over the past two weeks on a flagpole that took most of October to erect. Relative Strength looks a little too hot, as it has since late October. So does the daily MACD. The Full Stochastics Oscillator is hot but has cooled just a little bit as that flag had been added.
There are very small unfilled gaps to keep an eye on. In addition to the gap created this morning, there are tiny gaps in the $260's and the $230's. There will be volatility ahead. That said, I can not imagine selling any more of this name regardless of how hot this move has been, with the exception of doing so at target prices.
- Target Price: $387 (Up from $376)
- Pivot: $323
- Add: $275 (21 day EMA)
- Panic: $259 (up from $212)