Leading designer of graphics chips Nvidia (NASDAQ:NVDA) announced better-than-expected results in the Q3 FY2022 quarter, with revenue up 50.2% year on year to $7.1 billion. Guidance for next quarter's revenue was surprisingly good, being $7.4 billion at the midpoint, 8.13% above what analysts were expecting. NVIDIA made a GAAP profit of $2.46 billion, improving on its profit of $1.33 billion, in the same quarter last year.
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NVIDIA (NVDA) Q3 FY2022 Highlights:
- Revenue: $7.1 billion vs analyst estimates of $6.81 billion (4.25% beat)
- EPS (non-GAAP): $1.17 vs analyst estimates of $1.11 (5.8% beat)
- Revenue guidance for Q4 2022 is $7.4 billion at the midpoint, above analyst estimates of $6.84 billion
- Free cash flow of $1.27 billion, down 48.5% from previous quarter
- Inventory Days Outstanding: 82, down from 84 previous quarter
- Gross Margin (GAAP): 65.1%, up from 62.6% same quarter last year
“The third quarter was outstanding, with record revenue,” 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.
Sales Growth
NVIDIA's revenue growth over the last three years has been very strong, averaging 31% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $4.72 billion to $7.1 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).
This was a fantastic quarter for NVIDIA with 50.2% revenue growth, beating analyst estimates. This marks 8 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.
However, NVIDIA believes the growth is set to even accelerate, and is guiding for revenue to grow 56.5% YoY next quarter, and Wall St analysts are estimating growth 17.7% over the next twelve months.
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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.
This quarter, NVIDIA’s inventory days came in at 82, 9 days below the five year average, showing no indication of an excessive inventory buildup at the moment.
Key Takeaways from NVIDIA's Q3 Results
Sporting a market capitalization of $753 billion, more than $19.2 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.
We were impressed by the exceptional revenue growth NVIDIA delivered this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is up 2.8% on the results and currently trades at $300.76 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.