Nvidia (NASDAQ:NVDA) Q1: Beats On Revenue But Stock Drops On Weak Outlook

Adam Hejl /
2022/05/25 4:30 pm EDT
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Leading designer of graphics chips Nvidia (NASDAQ:NVDA) beat analyst expectations in Q1 FY2023 quarter, with revenue up 46.4% year on year to $8.28 billion. However, guidance for the next quarter was less impressive, coming in at $8.1 billion at the midpoint, being 4.05% below analyst estimates. Nvidia made a GAAP profit of $1.61 billion, down on its profit of $1.91 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 FY2023 Highlights:

  • Revenue: $8.28 billion (2.4% beat)
  • EPS (non-GAAP): $1.36 vs analyst estimates of $1.29 (5.03% beat)
  • Revenue guidance for Q2 2023 is $8.1 billion at the midpoint, below analyst estimates of $8.44 billion
  • Inventory Days Outstanding: 101, up from 90 previous quarter
  • Gross Margin (GAAP): 65.5%, up from 64.1% same quarter last year

“We delivered record results in Data Center and Gaming against the backdrop of a challenging macro environment,” 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 impressive, averaging 43.8% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $5.66 billion to $8.28 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

This was a great quarter for Nvidia with 46.4% revenue growth, beating analyst estimates by 2.4%. This marks 10 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 continue, and is guiding for revenue to grow 24.4% YoY next quarter, and Wall St analysts are estimating growth 22.5% 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 101, 9 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 Q1 Results

Sporting a market capitalization of $404 billion, more than $20.3 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.

We were impressed by the exceptional revenue growth Nvidia delivered this quarter. And we were also excited to see that earnings outperformed Wall St’s expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and inventory levels increased. Overall, this quarter's results could have been better. The company is down 9.85% on the results and currently trades at $153 per share.

Should you invest in Nvidia 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.