Nvidia Revenue Doubles, Profits Surge Eightfold

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In a remarkable display of resilience and strength, NVIDIA's latest financial report has not only met but exceeded high expectations from investorsThe company's stock, which has soared over 200% this year, surged nearly 10% in after-hours trading following the announcementThis surge is indicative of the market's confidence in the tech giant and its robust performance, particularly in the second quarter.

For the second quarter of 2023, NVIDIA reported revenues of $13.5 billion, marking a record for the quarter and showcasing an impressive year-on-year growth of over 100%. The company forecasts that revenue will reach approximately $16 billion in the third quarter, a number that analysts are eager to seeThis optimistic outlook is fueled by the increased demand for high-end chips, which has dramatically boosted the company's gross margin to 71.2%. NVIDIA also posted a staggering net profit of $6.18 billion for the quarter, representing an astonishing 843% increase compared to the previous year

In light of its record share prices, NVIDIA announced a new stock buyback program of up to $25 billion, a strategic move that further bolstered investor confidence.

The exuberance surrounding NVIDIA's report had a ripple effect across the technology sector, resulting in a collective rise in the three major U.Sstock indices on WednesdayThe Nasdaq composite bounced back with a 1.6% increase, greatly aided by NVIDIA's 4% market share within the indexMeanwhile, the S&P 500 recorded its first single-day gain of over 1% since JuneCurrently, the recent 6% decline in the Nasdaq from its July high seems to be a healthy retracement rather than a signal of a deeper bearish reversal, although the overall high valuations suggest future market movements will heavily depend on the Federal Reserve's stance.

NVIDIA’s second-quarter financial report is astounding.

Third-quarter revenue is expected to also surpass expectations.

Key highlights from NVIDIA’s second-quarter report include a performance that overwhelmingly surpassed analyst expectations

Factors driving this success include the surging market demand for AI and gaming chips, the launch of new products, and positive sentiment towards the tech sectorSpecifically, NVIDIA’s total revenue for the quarter reached $13.5 billion, up 101% year-on-year; gross margin stood at 70.1%, a 26.6 percentage point increase from the prior year; operating income surged to $6.8 billion, a staggering 1263% increase; operating expenses rose by 10% to $2.66 billion; net profit reached $6.18 billion, up 843% from a year ago; and the preliminary earning per share (EPS) came in at $2.48, a remarkable increase of 854% year-on-yearSuch robust performance naturally led NVIDIA to announce a substantial buyback of shares at this critical juncture.

In addition to delivering a strong financial report, NVIDIA introduced several new products and partnerships during the earnings call

These include the release of the new Grace CPU and Hopper GPU, along with a collaboration with Microsoft to integrate AI into cloud servicesInvestors are optimistic that NVIDIA will continue to capitalize on the growing demand for AI and gaming-related chips.

A closer examination of NVIDIA's business segments reveals its diverse operations: the Gaming Platform, Data Center, Artificial Intelligence, Automotive, and Professional Visualization.

The Gaming Platform marks NVIDIA's strong presence in the gaming industry, with the company designing, developing, and selling high-performance GPUs for gaming consoles, PCs, and laptops.

The Data Center segment is currently one of the hottest sectorsNVIDIA provides high-performance computing solutions for data centers, where its GPUs are extensively utilized for accelerating AI, deep learning, scientific computations, and large-scale data processing.

In Artificial Intelligence, NVIDIA's GPUs are essential for enhancing deep learning and machine learning initiatives

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The company also offers AI software tools and development platforms for training and inference, aiding developers in building and deploying various AI applications.

In the Automotive sector, NVIDIA supports car manufacturers in implementing autonomous driving technology by offering comprehensive computing platforms that include GPUs, software, and sensors for environmental perception, decision-making, and control capabilities for self-driving vehicles.

Professional Visualization is another significant application areaNVIDIA’s GPU technology is widely used in fields like filmmaking, design, and scientific visualization, providing high-performance graphics accelerators for workstations and servers that enable high-quality graphics rendering and simulation.

NVIDIA's data center revenue, the company's most lucrative segment, reached a record $10.32 billion, marking a 171% increase compared to last year

NVIDIA also revealed partnerships with ServiceNow and Accenture to develop AILighthouse, aiming to accelerate the adoption of enterprise generative AI capabilitiesFurthermore, the NVIDIA GH200 Grace Hopper Superchip, tailored for complex AI and HPC workloads, is set for shipment this quarter, with a next-generation version anticipated for release in the second quarter of 2024. Collaborative cloud services powered by the NVIDIA H100 Tensor Core GPU will be launched with leading cloud service providers like Amazon Web Services and Microsoft Azure.

For its Gaming division, revenue tallied $2.49 billion, a 22% year-on-year increase; Professional Visualization revenue stood at $379 million, down 24% from the last year; while Automotive revenue reached $253 million, posting a 15% increase year-on-year.

Balancing high valuations with strong profit expectations.

NVIDIA stocks remain a hold.

NVIDIA's GAAP valuation is approaching 50 times earnings, with non-GAAP valuations standing at 45 times

While these figures might not seem exorbitant in the medium term, the swift rise of the stock price raises the potential for profit-taking in the short termConsequently, investors may need to weigh the high valuations against the strong profit expectations.

The company projects revenues for the third quarter will be around $16 billion, with gross margins near 71.5% and operating expenses estimated at approximately $2.95 billionThis forecast points to some of the best performance witnessed in recent years, with actual results and future outlooks significantly surpassing market expectations, confirming NVIDIA's leading position in the industry.

NVIDIA remains the strongest-performing stock within the Nasdaq composite index this year, having surged 222.4% year-to-date, compared to the second-best performer Meta at 114.5%. I admit to having speculated about whether earnings would disappoint, especially considering the overall performance drop among ChatGPT users; however, this highlights the importance of not fighting trends without a comprehensive understanding.

Looking ahead, what does the investment outlook for NVIDIA look like? While traditional data center revenues improve and the significant investments in AI and the metaverse may appear burdensome now, these expenditures are aimed at resulting in substantial industry growth and returns in the future

The company's operating cash flow surplus has risen a remarkable 399% compared to last year, indicating strong financial healthWe anticipate seeing better Return on Equity (ROE) and Return on Assets (ROA) next year, so the stock can still be regarded as a solid holdHowever, for new investors entering the market, it is crucial to remain aware of current valuation risks.

From a technical standpoint, the four-hour chart indicates a support level slightly above $400, forming a head-and-shoulders pattern below the retracement lineThe breakout that began on Monday has caused prices to retreat to the neckline and retracement lines of the pattern, establishing a swing lowThe post-earnings rebound was the strongest since the release of the first-quarter report in May, with prices climbing swiftly to the critical monthly R2 levels near the head-and-shoulders target, leading to new historical highs.

Given that prices have fallen below $500, traders may seek to buy near $460 or close, without preset upward targets, hoping to ride this strong upward momentum

A drop below $400 would signify a longer-term corrective phase.

As of August 24, NVIDIA closed at $471.63.

The 6% pullback in the Nasdaq

is merely a part of healthy retracement.

The performance of tech giants closely correlates with the future trajectory of the Nasdaq 100 index, which has rebounded nearly 40% this year, recently experiencing a nearly 6% pullback over the last three weeksIn the weekly COT report, asset managers currently exhibit minimal interest in shorting Nasdaq 100 futures, still holding substantial net long positionsA definite shift in the market, indicated by decreased long positions and rising short positions, is necessary to confirm a reversal signal

Until then, the prevailing assumption is that the three-week decline from the July peak represents a healthy retraction rather than an intense bearish turnaround.

However, as the Jackson Hole summit approaches, along with Fed Chair Powell's critical speech, global markets face a dichotomy: they can either support a more hawkish Fed (leading to a stronger dollar and stock market declines), or a less hawkish stance than expected (which could see a rally in the stock market and a decline in the dollar). Moving forward, macroeconomic factors may increasingly influence the movements of U.Sstocks, alongside earnings growth.

Since March 2022, the Federal Reserve has embarked on an unprecedented tightening cycle, raising interest rates 11 times from levels near zero to the current range of 5.25% to 5.5%. This aggressive approach helped reduce inflation from a peak of 9.1% to its current level of 3.2%. While the market anticipates an end to this rate hike cycle, the Fed remains cautious, not declaring victory in the fight against inflation too soon

Amid a robust job market, positive economic data, and rising energy prices, inflation expectations in the U.Sremain elevatedConsequently, last week's Fed meeting minutes indicated that “inflation still poses an upside risk, and further rate hikes cannot be discounted.” From this perspective, market observers expect Powell not to stray far from this position, dampening expectations for rate cuts in the upcoming year.

In anticipation of potential hawkish rhetoric, the market has been preemptively selling U.STreasuries, leading to yields on the 10-year bond reaching a 16-year high, which in turn has bolstered the dollar index for five consecutive weeksWhether the rising volatility in the Treasury market reflects onto the stock market remains to be seenCurrently, the VIX, or volatility index, has surged to its highest point in three months at 17%, although it still remains below the 25% observed during last year's summit.

On the index front, charts of the Nasdaq 100 mini futures indicate a solid bullish structural formation, with current prices hovering at a six-day high

The RSI (14) has dipped into oversold territory (below 40 is typically seen in an upward trend), yet it remains below 60 (considered neutral in an upward trend). Therefore, the positioning above 14,400 currently oscillates between a "corrective low" and just the first wave low.

We postulate that the area around 15,600 might register as critical in the forthcoming days; if prices approach this level, momentum could waneConsequently, traders must remain agile or await the result of Powell's speech to discern how he might guide the market.

(The views expressed in this article reflect the author’s personal opinions and do not necessarily represent the position of this publicationThe stocks mentioned in the text are for analysis purposes only and do not constitute investment advice.)

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