Nvidia earnings: Stock rallies as AI giant reports 600% profit explosion

Investing

Nvidia again shattered Wall Street forecasts in its anxiously awaited earnings report Wednesday afternoon, sending shares of the chip designer and artificial intelligence top dog toward a record high.
US-TECHNOLOGY-AI-HUANG

Nvidia CEO Jensen Huang addresses a crowd in March.

AFP via Getty Images

Key Takeaways
  • Nvidia reported $6.12 earnings per share and $26 billion of sales for the three-month period ending April 30, shattering mean analyst forecasts of $5.60 and $24.59 billion, according to FactSet.
  • Nvidia’s profits and revenues skyrocketed by 628% and 268% compared to 2023’s comparable period, respectively.
  • This was Nvidia’s most profitable and highest sales quarter ever, topping the quarter ending this January’s record $12.3 billion net income and $22.1 billion revenue.
  • Driving the numerous superlatives for Nvidia’s financial growth over the last year is unsurprisingly its AI-intensive datacenter division, which raked in $22.6 billion of revenue last quarter, a 427% year-over-year increase and a whopping 20 times higher than the $1.1 billion the segment brought in in 2020.
  • Nvidia also announced it will conduct a 10-for-1 stock split June 7, which would trim its share price from about $950 to $95 while maintaining the company’s total valuation, enabling investors and employees to more affordably purchase whole shares.
  • Nvidia’s stock popped 4% immediately after the release, sitting at what would be an all-time high in regular trading hours.
Key Background

High volatility for Nvidia’s stock was expected, as options trading priced in a roughly 8% move in either direction after earnings. Nvidia, which designs a majority of the semiconductor chips powering generative AI technology, has arguably been the biggest winner of the AI boom over the last two years, with the likes of Amazon and Microsoft among its top customers. Nvidia is the third most valuable company in the world with a market capitalisation of about $2.3 trillion, a far cry from its sub-$400 billion market value at the end of 2022.

Though a slowdown from the fairly unprecedented financial growth Nvidia experienced in recent quarters, analysts expect Nvidia to continue to grow at a strong pace, with consensus estimates projecting Nvidia’s revenues to expand by about 90% in its fiscal year ending in Jan. 2025, with the $112 billion in forecasted sales more than four times higher than the 2022-23 fiscal year’s $27 billion.

Tangent

Nvidia has almost single-handedly lifted the American stock market from its 2022 doldrums to today’s record levels. Its 490% total return over the last 18 months is far better than the average S&P 500 stock’s 13% return over the period, with the S&P up over 36% during that stretch.

Even after Nvidia’s valuation exploded, there aren’t many on Wall Street who find Nvidia overvalued, as not one analyst tracked by FactSet has a sell rating on the stock, with the average price target of $1,039 per share pricing in about 10% upside from Wednesday’s closing price.

Surprising Fact

Nvidia’s rise to become a $2 trillion company came as its once bread-and-butter video game business fell into a rut. Sales for Nvidia’s gaming unit are about 25% lower than they were two years ago, accounting for just a tenth of overall revenues last quarter, a far cry from the over 40% gaming revenue mix Nvidia had for each of 2020 to 2022’s first calendar quarters.

In short, Nvidia has largely shifted its focus away from cheaper direct-to-consumer graphics processing units (GPUs) often coveted by gamers and instead redirected attention toward supplying AI-focused GPUs to big-ticket corporate clients.

More from Forbes Australia