Nvidia (NASDAQ:NVDA) Reports Strong Q2, Stock Soars

Adam Hejl /
2023/08/23 4:27 pm EDT

Leading designer of graphics chips Nvidia (NASDAQ:NVDA) reported results ahead of analysts' expectations in Q2 FY2024, with revenue up 101% year on year to $13.5 billion. On top of that, next quarter's revenue guidance ($16 billion at the midpoint) was surprisingly good and 28.9% above what analysts were expecting. Nvidia made a GAAP profit of $6.19 billion, improving from its profit of $656 million in the same quarter last year.

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Nvidia (NVDA) Q2 FY2024 Highlights:

  • Revenue: $13.5 billion vs analyst estimates of $11.1 billion (21.9% beat)
  • EPS (non-GAAP): $2.70 vs analyst estimates of $2.09 (29.4% beat)
  • Revenue Guidance for Q3 2024 is $16 billion at the midpoint, above analyst estimates of $12.4 billion
  • Free Cash Flow of $6.05 billion, up 129% from the previous quarter
  • Inventory Days Outstanding: 97, down from 165 in the previous quarter
  • Gross Margin (GAAP): 70.1%, up from 43.5% in the same quarter last year

“A new computing era has begun. Companies worldwide are transitioning from general-purpose to 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 39.5% annually. But as you can see below, this quarter wasn't particularly strong, with revenue growing from $6.7 billion in the same quarter last year to $13.5 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

Nvidia had a fantastic quarter as its 101% year-on-year revenue growth beat analysts' estimates by 21.9%. Nvidia's growth inflected positively this quarter, showing that we may be in the early innings of a new upcycle.

Nvidia returned to positive revenue growth this quarter and its management team expects the trend to continue. The company is guiding to 170% year-on-year growth next quarter, and analysts seem to agree, forecasting 83.9% growth over the next 12 months.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

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.

Nvidia Inventory Days Outstanding

This quarter, Nvidia's DIO came in at 97, which is 11 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

Key Takeaways from Nvidia's Q2 Results

With a market capitalization of $1.13 trillion, a $16 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Nvidia has the resources needed to pursue a high-growth business strategy.

This was a fantastic quarter for Nvidia with beats across nearly every key metric. We were particularly impressed by its revenue beat, driven by strong performance in the data center segment which houses the company's AI chips division. Furthermore, we were encouraged by Nvidia's revenue guidance for next quarter, which blew past analysts' expectations. Lastly, the company demonstrated its commitment to shareholders by announcing a $25 billion share buyback. This quarter was particularly impressive in the face of sky-high buy-side expectations. The stock is up 6.66% after reporting and currently trades at $502.61 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.

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