Nvidia (NASDAQ:NVDA) Beats Expectations in Strong Q1, Stock Jumps 14.3%

Radek Strnad /
2023/05/24 4:25 pm EDT

Leading designer of graphics chips Nvidia (NASDAQ:NVDA) reported Q1 FY2024 results beating Wall St's expectations, with revenue down 13.2% year on year to $7.19 billion. On top of that, guidance for next quarter's revenue was surprisingly good, being $11 billion at the midpoint, 54.6% above what analysts were expecting. Nvidia made a GAAP profit of $2.04 billion, improving on its profit of $1.62 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) Q1 FY2024 Highlights:

  • Revenue: $7.19 billion vs analyst estimates of $6.52 billion (10.3% beat)
  • EPS (non-GAAP): $1.09 vs analyst estimates of $0.92 (18.8% beat)
  • Revenue guidance for Q2 2024 is $11 billion at the midpoint, above analyst estimates of $7.11 billion
  • Free cash flow of $2.64 billion, up 52.2% from previous quarter
  • Inventory Days Outstanding: 165, down from 212 previous quarter
  • Gross Margin (GAAP): 64.6%, down from 65.5% same quarter last year

“The computer industry is going through two simultaneous transitions — accelerated computing and generative AI,” 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 35.2% annually. But as you can see below, last year quarterly revenue declined from $8.29 billion to $7.19 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 13.2% revenue decline.

Nvidia's growth looks on the cusp of a rebound, as it is guiding to growth of 64.1% YoY next quarter, and analysts are estimating 24.9% growth over the next twelve months.

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 165, 57 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Key Takeaways from Nvidia's Q1 Results

Sporting a market capitalization of $759 billion, more than $15.3 billion in cash and with positive free cash flow over the last twelve months, we're confident that Nvidia has the resources it needs to pursue a high growth business strategy.

The biggest highlight of Nvidia's quarter was revenue guidance for Q2, which was >50% ahead of expectations. We had to triple check that one! This led to operating profit guidance meaningfully ahead as well. We were impressed by the strong improvements in Nvidia’s inventory levels. And we were also excited to see that earnings outperformed Wall St’s expectations. On the other hand, it was less good to see the deterioration in operating margin. Zooming out, we think this was a great quarter and shareholders will likely feel excited about the results. The company is up 14.3% on the results and currently trades at $349.01 per share.

Nvidia may have had a good quarter, so should you 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.