In what was the most anticipated quarter of this earnings season, Nvidia far beat lofty expectations on both the top and bottom lines. Even better was a big revenue guide and a broader vision from CEO Jensen Huang, which reinforced the idea that companies and countries are collaborating with the power of AI chips to transform traditional trillion-dollar data centers into accelerated computing. First-quarter fiscal 2025 revenue rose 262% year over year to $26.04 billion, exceeding analysts' expectations of $24.65 billion, according to data provider LSEG, formerly known as Refinitiv. The company had previously guided for revenue of $24 billion, plus or minus 2% — so that was a big win. Adjusted EPS rose 461% to $6.12, beating LSEG's consensus estimate of $5.59. Adjusted gross margin of 78.9% also beat the Street's estimate of 77.2%, according to market data platform FactSet. The company guided its gross profit margin to 77%. Plus or minus 50 basis points. On top of the strong results, Nvidia announced a 10-for-1 stock split. Although stock splits don't technically create value, they tend to have a positive impact on the stock. The company said the split is intended to “make stock ownership more accessible to employees and investors.” We applaud Nvidia for doing this and will continue to pressure other companies to do the same. Nvidia recently split its stock in July 2021 on a 4-for-1 basis. In after-hours trading, it was not surprising to see Nvidia shares rise. Nvidia Why we have it: Nvidia's high-performance graphics processing units (GPUs) are the main engine behind the AI revolution, powering the accelerating data centers that are rapidly being built around the world. But this is more than just the hardware story. With the Nvidia AI Enterprise service, Nvidia is building a potentially massive software business. Competitors: Advanced Micro Devices, Intel Last Purchased: August 31, 2022 Started: March 2019 Bottom Line What is an Air Pocket? Entering the quarter, it looked as if the only thing that could hold Nvidia back was a slowdown related to product migration from customers delaying orders for the H100 and H200 GPUs in anticipation of the superior Blackwell chipset platform. As you can see from Nvidia's big guide and bullish guide, this was far from reality and demand is expected to outpace supply for some time. If this narrative comes up again, it's a good idea to remember it next time so these concerns don't derail you from a strong long-term thesis: Jensen explained on the post-earnings conference call that customers are still so early in construction that they should continue to buy chips to keep up with the current technological arms race. Technology leadership is everything. “There's going to be a whole bunch of chips coming to them and they just have to keep building and, if you will, mediocre performance on your way there. So that's the smart thing to do,” the CEO said. More broadly, we didn't hear anything Wednesday evening to change our long-term view of how Nvidia is the driving force behind the current AI industrial revolution. Here's how Jensen explained the shift taking place: “In the long term, we are completely redesigning how computers work. This is a platform shift. Of course, it has been compared to other platform shifts in the past, but time will clearly tell that this is much more profound than the The precedent in the platform The reason for this is that the computer is no longer an instruction-only computer, it is a computer that understands intent Jensen went on to mention how computers not only interact with us, but they also understand our meaning, and what we intend to ask them to do. “It has the ability to think and reason repeatedly to process, plan, and come back with an idea for a solution.” The billions and billions of dollars spent on accelerated computing are the reason we own Nvidia for the long term and aren't trying to replace them back and forth on every major title. By the way, another bearish narrative we often hear is that custom chips made by all the major cloud companies pose a threat to Nvidia's leadership. Jensen doesn't see it that way because his platform has the highest performance and the lowest total cost of ownership. It's an unbeatable value proposition. NVDA Year-to-date results, strong outlook, upbeat commentary and a stock split have sent Nvidia shares up nearly 6% to above $1,000 per share for the first time ever. However, we don't think the gains end here. We are increasing our price target to $1,200 from $1,050 and maintaining our rating of 2, meaning we view it as a buy on pullbacks. Quarterly Results Growth was driven by all types of customers, but enterprise and consumer Internet companies led the way. Large cloud companies accounted for up to 40% of data center revenue this quarter, so when you see companies like Oracle, Amazon, Microsoft, and Alphabet raise their capital spending forecasts, understand that a lot of those dollars will flow Nvidia's way. And there's a good reason for that. During the call, Nvidia CFO Colette Kress estimates that for every $1 spent on Nvidia AI Infrastructure, the cloud provider has the opportunity to earn $5 in immediate GPU hosting revenue over four years. One customer called in this quarter was Tesla, which expanded its training AI stack to 35,000 H100 GPUs (graphics processing units). Nvidia said Tesla's use of Nvidia AI infrastructure “paved the way” for the “incredible performance” of version 12 of full self-driving. (Full self-driving, or FSD, is how Tesla markets its high level of driver-assistance software.) Interestingly, Nvidia sees the automotive sector as a huge sector this year, representing a multi-billion-dollar revenue opportunity across on-premises and cloud consumption. Another highlight was Meta's announcement of Llama 3, its large language model. It was trained on a cluster of 24,000 H100 GPUs. Chris believes that as more consumer Internet customers use generative AI applications, Nvidia will see more growth opportunities. Tesla and Meta clusters are examples of what Nvidia calls “AI factories.” The company believes that “these next-generation data centers host accelerated, integrated, and advanced computing platforms where data comes in and intelligence goes out.” Nvidia also noted that sovereign AI has been a significant source of growth. The company defines sovereign AI as “a nation’s capabilities to produce artificial intelligence using infrastructure, data, workforce and business networks.” Chris expects sovereign AI revenues to approach high billions of dollars this year from nothing last year Hopper For a while, the company said, “They want to get the money, and they want to do it as soon as possible.” In other words, customers will take whatever they can get, but look for Blackwell's revenue later this year, perhaps by a very large amount. The company explained that the Blackwell manufacturing was in production and shipments are expected to begin in the second quarter of fiscal year 2025, then moving towards the third quarter, and customers will have complete data centers ready in the fourth quarter. The program was mentioned more than twenty times on the conference call. Combined, Nvidia said on the previous quarter's call that its software and services reached an annual revenue rate of $1 billion. They are high-margin, recurring revenue businesses, which continue to be key areas to watch in future quarters. As for China, the company said it has begun ramping up new products designed specifically for the region that do not require an export control license. The US government has restricted sales of the fastest chips for fear of them being used by the Chinese military. However, he doesn't like China being the revenue driver it has been in the past because limitations on Nvidia's technology have made the environment more competitive. Guidance The company's second-quarter financial guidance should ignore market concerns about forming a kind of “air pocket” for AI spending. For the current second quarter, Nvidia expects revenue of $28 billion, plus or minus 2%, above consensus estimates of $26.6 billion, and adjusted gross margins are expected to be 75.5%, plus or minus 50 basis points, above estimates of 75.2%. Returns on Capital Nvidia increased its quarterly dividend by 150%, which is good but the annual return is not important for the investment case. Most impactful is the $7.7 billion in stock the company repurchased in its fiscal first quarter. (Jim Cramer's Charitable Trust is long NVDA. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you'll receive a trade alert before Jim makes a trade. 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Jensen Huang, co-founder and CEO of Nvidia Corp, during the Nvidia GPU Technology Conference (GTC) in San Jose, California, US, on Tuesday, March 19, 2024.
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In what was the most anticipated quarter of this earnings season, Nvidia far beat lofty expectations on both the top and bottom lines. Even better was a big revenue guide and a broader vision from CEO Jensen Huang, which reinforced the idea that companies and countries are collaborating with the power of AI chips to transform traditional trillion-dollar data centers into accelerated computing.
