Nvidia Shows Its Running on All Cylinders

(Michael Vi)
(Michael Vi)
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Nvidia beat revenue and earnings estimates for its fourth quarter (ending January 31). The company also guided to Q1 revenue growth well above analyst expectations. Today, our coverage analyst Jake H takes us through the earnings report.

Key Takeaways

See the earnings release here.

  • Revenue of $7.64B beat estimates of $7.42B, up 53% YoY
  • Diluted EPS of $1.32 beat estimates of $1.22, up 69% YoY
  • Q1 revenue expected to be $8.10B, representing 43% YoY, well above analyst estimates of $7.29B.

Company Overview

  • Nvidia Corporation (NVDA) is an artificial intelligence computing company.
  • It operates through two segments: Graphics and Compute & Networking.
    • Its Graphics segment includes GeForce graphics processing unit (GPU), the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; virtual graphics processing unit (vGPU) software for cloud-based visual and virtual computing; and automotive platforms for infotainment systems.
    • Its Compute & Networking segment includes Data Center platforms and systems for artificial intelligence (AI), high-performance computing (HPC), and accelerated computing; Mellanox networking and interconnect solutions; automotive AI Cockpit, autonomous driving development agreements, and autonomous vehicle solutions; and Jetson for robotics and other embedded platforms.

Q4 Earnings Highlights

Key Metrics

  • Termination of Arm Purchase
    • Nvidia will write off a 1.36B charge in Q1 FY23 reflection the termination of agreement with Softbank. Cited significant regulatory challenges due to the transaction.
  • Gaming
    • Launched GeForce RTX 3050 GPU, starting at $249.
    • Launched GeForce RTX 3080 Ti and 3070 Ti laptop GPUs
    • Has over 160 gaming-based laptop designs with leading manufacturers.
    • Announced over 30 new RTX games this quarter
  • Data Center
    • Announced that Meta is building its AI Research SuperCluster with NVIDIA DGX A100 systems.
    • Open-sourced NVIDIA FLARE to collaborate and gather more data.
    • Stanford researchers set a world record for the fastest DNA sequencing of a human genome using NVIDIA Clara.
  • Professional Visualization
    • Launched NVIDIA Omniverse for creators at no cost.
    • Launched Omniverse Universal Scene Description connector for Blender, the world’s most popular open-source 3D creative application.
    • University of Illinois built the longest, most complex 3D cell simulation using NVIDIA GPU software
  • Automotive and Robotics
    • Formed a multi-year partnership with Jaguar Land Rover
    • Announced NIO, Xpeng, and Pony.ai are using NVIDIA DRIVE Orin.
    • Launched Isaac Autonomous Mobile Robot platform for building and deploying robotics applications.

Financials (Three months ended Dec 31)

  • Q4 FY22
    • Revenue | $7.64B vs. $7.43B expected, up 53% YoY
    • EPS | $1.32 vs. $1.22 expected, up 69% YoY
  • FY22
    • Revenue | $26.91B, up 61% YoY
    • EPS | $4.44, up 78% YoY

Guidance (Current quarter)

  • Revenue | $8.10B +/- 2%
    • $7.23B analyst estimates before the report
  • Non-GAAP margin of 67%
  • Non-GAAP operating expenses of $1.60B

Management Commentary

Jensen Huang, President + CEO

  • Jaguar Land Rover Partnership
    • “Earlier today, we announced a partnership with Jaguar Land Rover to jointly develop and deliver fleets of software-defined cars. Starting in 2025, all new Jaguar and Land Rover vehicles will have next-generation automated driving systems, plus AI-enabled software and services built on the NVIDIA DRIVE platform. DRIVE Orin will be the AI computer brain running our DRIVE AV and DRIVE IX software. And the DRIVE Hyperion sensor network will be the central nervous system.”
  • On NVIDIA moving to SaaS
    • “NVIDIA is a software-driven business. Accelerated computing is a software-driven business. It starts from recognizing what domain of applications we want to accelerate and can accelerate and then building an entire stack from the processor to the system to the system software, the acceleration engines and potentially even the applications itself, like the software that we were mentioning earlier, NVIDIA DRIVE, NVIDIA AI and NVIDIA Omniverse.”
  • On long-term gross margins
    • “In the Data center and with our already procured deals. A lot of work we’ve got a great opportunity in the future and be margin — so we’re going to work on that. We’ve set the stage for having been able to package it up to be able to sell it separately to create the business model, to create the partners that are helping us sell it. But yes, we do believe this will be a driver in the long term.”

Colette Kress, EVP + CFO

  • On crypto mining effect on revenue
    • “Our GPUs are capable of cryptocurrency mining, so we have limited visibility into how much of this impacts our overall GPU demand. Nearly all desktop NVIDIA Ampere architecture GeForce GPU shipments are light cache rate to help direct GeForce supply to gamers. Cryptomining processor revenue was $24 million, which is included in OEM and other.”
  • On next quarter guidance
    • “We expect sequential growth to be driven primarily by Data Center. Gaming will also contribute to growth. Revenue is expected to be $8.1 billion, plus or minus 2%. GAAP and non-GAAP gross margins are expected to be 65.2% and 67%, respectively, plus or minus 50 basis points. GAAP operating expenses are expected to be $3.55 billion, including the Arm write-off of $1.36 billion. Non-GAAP operating expenses are expected to be $1.6 billion. For the fiscal year, we expect to grow non-GAAP operating expenses at a similar percent as in fiscal 2022.”

Valuation + Analysis

  • At $261/share $NVDA is not cheap trading at about 47 times 2022 EBITDA. Looking at the DCF with a 5% terminal growth rate and 8% discount rate we value the shares at around $240 making them fairly valued at these prices.

JH: NVIDIA has the largest TAM among all chip makers, NVIDIA is now a company in multiple industries as they start to expand into AI, networking, the omniverse, robotics, and healthcare building their moat. The technology uses and demand among major segments is surging. NVIDIA is even beginning to launch SaaS platforms to help expand their business. These new business models will help protect their margin as chip companies navigate through the risks of inventory buildups and a potential crypto winter.

  • Upside Risks
    • Higher than expected semiconductor sales.
    • Low volatility in crypto markets.
    • Faster than expected penetration of data center market share.
  • Downside Risks
    • Lower than expected semiconductor sales.
    • Crypto winter
    • Inventory backlog
    • Decrease in adoption of new technology
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