Nvidia (NVDA) has once again left investors in awe with its latest quarterly performance. The company’s streak of impressive quarters continues, with four consecutive quarters delivering remarkable results. In response, Nvidia became the first semiconductor company to reach a market cap of $2 trillion, after adding a record $277 billion in stock market value.
With Nvidia stock skyrocketing some 60% this year, accounting for more than a quarter of the benchmark S&P 500’s year-to-date gains, investors want to know if this strong momentum can continue. Part of the reason its recent jump is the company’s guidance for its Q1 2024, which not only sent technology and artificial intelligence-related stocks soaring, Nvidia’s gains sent the Nasdaq Composite Index soaring 3% on Thursday, logging its best session in more than a year.
For those who are invested, the dilemma is whether to lock in gains and wait for a pullback. For others who are on the sidelines, the dilemma is whether to enter the stock and fear missing out on additional gains? But I believe the $2 trillion milestone will now establish a floor for where the stock trades. During the earnings call with analysts, Nvidia executives highlighted an exhaustive list of companies and industries embracing Nvidia’s generative AI, suggesting a never-ending demand.
“Generative AI is a new application,” said Jensen Huang, founder and CEO of Nvidia. “It is enabling a new way to create software. It’s a new way of computing. This is enabling a whole new industry. This is driving our growth.” There continues to be relentless demand for AI, especially in the datacenter, where the company’s revenue. “The world has reached a tipping point,” said Colette Kress, Nvidia’s chief financial officer. “Fourth-quarter Data Center revenue was driven by generative AI and training.”
Looking at the numbers for the fourth quarter ending Jan. 28, 2024, Nvidia earned an adjusted $5.16 per share on $22.1 billion in revenue, which surged 265% year over year. Nvidia reported Q4 profits of $12.29 billion during the quarter, or $4.93 per share, up 769% versus last year’s $1.41 billion or 57 cents per share. Analysts had expected the company to post earnings of $4.64 per share on revenues of $20.5 billion.
“We estimate approximately 40% of Data Center revenue for the past year was from AI,” Kress said, highlighting the success of Microsoft’s (MSFT) Copilot as well as Meta Platforms (META) which both utilize Nvidia’s generative AI chips as primary growth drivers. “One of the most notable trends of the past year is the adoption of AI by industries. Almost 80 vehicle manufacturers are using Nvidia’s AI structure for autonomous driving and other applications. We expect this to grow.”
However, it doesn’t stop with tech companies. “Pharmaceutical companies are embracing Nvidia’s generative AI for computer-aided drug discovery,” Kress added. “In financial services, companies are using AI for fraud detection, customer service and trading.” Essentially, Nvidia continues to answer the most important question that has been the minds of investors: The euphoria surrounding AI and generative AI is more than hype.
The company is diversifying into new industries with various use cases. Or as Huang referred to, “a collection of multibillion-dollar industries are embracing our generative AI.” In terms of the first quarter 2024 guidance, Nvidia expects to generate $24 billion in revenue, plus or minus 2%. This is $2 billion higher than what analysts were forecasting. “We guide one quarter at a time, but fundamentally the conditions for growth are excellent,” Huang said.
The numbers continue to be breathtaking considering the consistently high expectations Nvidia was facing entering the quarter. If there were any concerns about Nvidia’s $2 billion valuation, the Q4 results and Q1 guidance have put that debate to rest. As such, Nvidia stock remains a strong Buy.
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First appeared on www.nasdaq.com