Nvidia’s Q1 Earnings Report: Strong Data Center Demand and Impressive Q2 Revenue Projections

Nvidia’s recent earnings report has sent shockwaves through the tech industry, with the AI chipmaker reporting Q1 earnings of $1.09 per share on $7.2 billion in revenue, significantly higher than analysts had predicted.[0] Nvidia also announced that it expects Q2 revenue of $11 billion, compared to the expected $7.2 billion, thanks to strong demand for its data center products amid the rise of accelerated computing and generative AI. This marks a significant increase in supply to meet surging demand for its data center products.[1]

The surge in demand for AI has provided a huge boost to businesses like Nvidia, which provide the hardware needed to run complex models with billions of inputs. Nvidia designs and sells graphics processing unit (GPU) chips that are used in data centers and power AI applications.[2] The popularity of AI has experienced a significant increase in recent months, possibly due to the widespread attention garnered by OpenAI’s ChatGPT.[3]

According to Nvidia CEO Jensen Huang, the computer industry is going through two simultaneous transitions: accelerated computing and generative AI.[4] A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service, and business process.[5]

In Q1, Nvidia’s data center division achieved an all-time high revenue of $4.3 billion.[2] Despite the looming possibility of a recession, companies continued to invest in new equipment as the demand for data centers remained relatively stable and non-cyclical.[6] The reason behind this is that data centers are vital for several businesses, leaving them with limited options while allocating funds to this domain.[6] Strong data center sales were also seen in the results of other chip companies such as Advanced Micro Devices (AMD).[6] Both Nvidia and AMD also benefited from the weak performance of their competitor Intel (INTC), as Intel has been losing market share in the data center space in recent quarters due to self-inflicted problems and an unconvincing product line-up.[6]

Despite Nvidia’s impressive growth in value, other chip manufacturers are not experiencing the same lift.[7] The surge in AI chip popularity is a result of the increasing need for high-capacity GPUs for graphics processing. The company has been a historic outperformer in the high-performance “discrete” GPU market, especially compared to Intel.[7]

Nvidia’s market cap is rapidly approaching the $1 trillion threshold held by just four other U.S. companies: Apple, Microsoft, Alphabet, and Amazon.[2] This will put Nvidia on the doorstep of becoming the next trillion-dollar company, a very elite club that, according to Bloomberg, only eight companies have hit before (and only five companies are members of now).[8] Nevertheless, analysts overwhelmingly believe the stock is still a Buy.[0] According to Kiplinger’s senior investing writer, Dan Burrows, who analyzed Nvidia’s earnings, out of the 48 analysts surveyed by S&P Global Market Intelligence, 31 have rated it as a Strong Buy, nine have classified it as a Buy, and eight have called it a Hold.[0] The consensus recommendation falls slightly below the Strong Buy rating.[0]

While Nvidia is a high-quality company for sure, it’s active in growth markets, and the guidance for the current quarter is impressive, it does not mean that NVDA is a buy at every price and at every valuation.[6] Investors who purchased Nvidia stock at its peak, when it traded at more than $300, suffered significant losses when the company’s share price eventually dropped to below $100.[6] Although it may not occur in the future, there is a possibility that stocks with a high valuation may face multiple compression, despite the underlying business growth being appealing.[6]

0. “Stock Market Today: Stocks Rise After AI Outlook Sparks Explosive Nvidia Rally” Kiplinger’s Personal Finance, 25 May. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-stocks-rise-after-ai-outlook-sparks-explosive-nvidia-rally

1. “Nvidia stock jump nets CEO Jensen Huang $6.4B one-day windfall” SFGATE, 25 May. 2023, https://www.sfgate.com/tech/article/nvidia-stock-jump-nets-ceo-jensen-huang-billions-18119845.php

2. “Nvidia surges past $900B market value after forecast surprise—but its CEO warns Biden’s chip controls have the industry’s ‘hands tied’” Fortune, 25 May. 2023, https://fortune.com/2023/05/25/nvidia-shares-earnings-revenue-ceo-jensen-huang-us-china-chip-controls/

3. “Two of the world’s most critical chip firms rally after Nvidia’s 26% share price surge” CNBC, 25 May. 2023, https://www.cnbc.com/2023/05/25/tsmc-asml-two-critical-chip-firms-rally-after-nvidias-earnings.html

4. “Nvidia Expects AI Boom to Reinvigorate Growth” Statista, 25 May. 2023, https://www.statista.com/chart/30077/nvidia-revenue

5. “NVIDIA Announces Financial Results for First Quarter Fiscal 2024” NVIDIA Blog, 24 May. 2023, https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-first-quarter-fiscal-2024

6. “Nvidia Stock Soars On Blowout Guidance (NASDAQ:NVDA)” Seeking Alpha, 24 May. 2023, https://seekingalpha.com/article/4607157-nvidia-soars-on-blowout-guidance

7. “Nvidia shares surge to record close with 24% rally” CNBC, 25 May. 2023, https://www.cnbc.com/2023/05/25/nvidia-on-track-for-record-high-driven-by-ai-chip-demand.html

8. “NVIDIA Reports Q1 FY2024 Earnings: Bigger Things to Come as NV Approaches $1T Market Cap” AnandTech, 25 May. 2023, https://www.anandtech.com/show/18874/nvidia-reports-q1-fy2024-earnings-bigger-things-to-come-as-nv-approaches-1t-market-cap