Nvidia (NASDAQ:NVDA) Reports Q4 Sales In Line With Expectations, Stock Soars On Strong Guidance

Radek Strnad /
2023/02/22 4:54 pm EST
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Leading designer of graphics chips Nvidia (NASDAQ:NVDA) reported results in line with analyst expectations in Q4 FY2023 quarter, with revenue down 20.8% year on year to $6.05 billion. Guidance for next quarter's revenue was $6.5 billion at the midpoint, which is 2.8% above the analyst consensus. Nvidia made a GAAP profit of $1.41 billion, down on its profit of $3 billion, in the same quarter last year.

Is now the time to buy Nvidia? Access our full analysis of the earnings results here, it's free.

Nvidia (NVDA) Q4 FY2023 Highlights:

  • Revenue: $6.05 billion vs analyst estimates of $6.02 billion (small beat)
  • EPS (non-GAAP): $0.88 vs analyst estimates of $0.80 (9.55% beat)
  • Revenue guidance for Q1 2024 is $6.5 billion at the midpoint, above analyst estimates of $6.32 billion
  • Free cash flow of $1.74 billion, up from negative free cash flow of $156 million in previous quarter
  • Inventory Days Outstanding: 212, up from 147 previous quarter
  • Gross Margin (GAAP): 63.3%, down from 65.4% same quarter last year

"AI is at an inflection point, setting up for broad adoption reaching into every industry,” said Jensen Huang, founder and CEO of NVIDIA.

Founded in 1993 by Jensen Huang and two former Sun Microsystems engineers, Nvidia (NASDAQ:NVDA) is a leading fabless designer of chips used in gaming, PCs, data centers, automotive, and a variety of end markets.

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

Nvidia's revenue growth over the last three years has been very strong, averaging 39.5% annually. But as you can see below, last year quarterly revenue declined from $7.64 billion to $6.05 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Nvidia Total Revenue

Despite Nvidia revenues beating analyst estimates, this was still a slow quarter with a 20.8% revenue decline.

Nvidia's revenue growth has slowed for the last three quarters and the company expects growth to turn negative next quarter guiding to a 21.6% year on year decline, but analysts think it will recover next year, as consensus NTM revenues are forecast to grow 11%.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Nvidia Inventory Days Outstanding

This quarter, Nvidia’s inventory days came in at 212, 109 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Nvidia's Q4 Results

With a market capitalization of $508 billion, more than $13.3 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed by how strongly Nvidia outperformed analysts’ earnings expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see that the revenue growth was quite weak and operating margin deteriorated. Overall, this quarter's results were good. The company is up 7.88% on the results and currently trades at $224.33 per share.

Nvidia may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.