Leading designer of graphics chips Nvidia (NASDAQ:NVDA) beat analysts' expectations in Q1 CY2024, with revenue up 262% year on year to $26.04 billion. On top of that, next quarter's revenue guidance ($28 billion at the midpoint) was surprisingly good and 4.3% above what analysts were expecting. It made a non-GAAP profit of $6.12 per share, improving from its profit of $1.09 per share in the same quarter last year.
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Nvidia (NVDA) Q1 CY2024 Highlights:
- Revenue: $26.04 billion vs analyst estimates of $24.59 billion (5.9% beat)
- EPS (non-GAAP): $6.12 vs analyst estimates of $5.58 (9.7% beat)
- Revenue Guidance for Q2 CY2024 is $28 billion at the midpoint, above analyst estimates of $26.84 billion
- Gross Margin (GAAP): 78.4%, up from 64.6% in the same quarter last year
- Inventory Days Outstanding: 95, up from 90 in the previous quarter
- Free Cash Flow of $14.94 billion, up 32.8% from the previous quarter
- Market Capitalization: $2.35 trillion
“The next industrial revolution has begun — companies and countries are partnering with NVIDIA to shift the trillion-dollar traditional data centers to accelerated computing and build a new type of data center — AI factories — to produce a new commodity: artificial intelligence,” 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.
Processors and Graphics Chips
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 incredible, averaging 83.7% annually. As you can see below, this quarter was especially strong, with revenue growing from $7.19 billion in the same quarter last year to $26.04 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 had a fantastic quarter as its 262% year-on-year revenue growth beat analysts' estimates by 5.9%. This marks 4 straight quarters of growth, implying that Nvidia is in the middle of its cycle, as a typical upcycle generally lasts 8-10 quarters.
Nvidia's management team believes its revenue growth will continue, guiding to 107% year-on-year growth next quarter. Analysts expect the company to grow its revenue by 56.6% over the next 12 months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity 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 DIO came in at 95, which is 9 days below its five-year average. These numbers show that despite the recent increase, there's no indication of an excessive inventory buildup.
Key Takeaways from Nvidia's Q1 Results
We were impressed by Nvidia's healthy gross margin improvement this quarter, indicating elevated pricing power. We were also excited its revenue and EPS outperformed Wall Street's estimates, driven by better-than-expected results in its data center and automotive segments; the result in its automotive segment (17% year-on-year revenue growth) was especially impressive given the industry is in a cyclical downturn and many other semiconductor companies have posted year-on-year declines for that end market. Lastly, we note its inventory levels increased, likely due to the company stocking up on products in anticipation of strong demand.
During the announcement of the results, Nvidia issued a 10-1 stock split that will commence on Friday, June 7, 2024. Looking ahead, Nvidia's revenue for the next quarter beat expectations again.
Overall, we think this was a great quarter that shareholders will appreciate. The stock is up 4.6% after reporting and currently trades at $992.56 per share.
Nvidia may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.