Nvidia: Breaking down the King's earnings
Nvidia: Breaking down the King's earnings
and why the stock has appreciated so much in the last month.
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November 18, 2021
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Nvidia has proven itself to be the new King of the chip industry. Although Intel (INTC) is still the reigning emperor, their grasp over the industry may be slipping.
Today I'll tell you everything you need to know about Nvidia's earnings report from yesterday and a break-down of why their share price has had such an explosive move to the upside.
Let's dive in.
Today's Letter
China Stocks Outlook
Nvidia's Earnings Breakdown
Trending Tickers
China Stocks Outlook
Some of the more anticipated China stocks reported today, the results were mixed, but the outlook (yet again) does not look good. If one year ago someone told me BABA would be trading at $140 today I would not have believed them. Here are today's earnings results.
Alibaba (BABA)
EPS $1.74 vs $1.93 est. (miss)
Revenue $31.1B vs $32.0B (miss)
Shares are down 12% today and 50% in the last 12 months. Feels bad man.
JD . com (JD)
EPS $0.49 vs $0.32 est. (beat)
Revenue $33.9B vs $33.5B (beat)
Shares are up 5% today.
Other notable China stocks that reported earlier this week were IQ (down 22% in the last 5 sessions) and Baidu (BIDU), which is also down 10% in the last 5 sessions. China continues to prove to be in risk-off mode until further notice and reversal of some trends we are seeing.
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Nvidia Earnings - All you need to know
This section is somewhat long, so I’ve broken it down into categories each with their own headline. Skip to the headline that might interest you. All data, numbers, media, have been taken from the Nvidia investor presentation and earnings call transcript.
Quarter Highlights
Record revenue of $7.10 billion, up 50 percent from a year earlier
Record Data Center revenue of $2.94 billion, up 55 percent from a year earlier
Record Gaming revenue of $3.22 billion, up 42 percent from a year earlier
“The third quarter was outstanding, with record revenue,” said Jensen Huang, founder and CEO of NVIDIA. “Demand for NVIDIA AI is surging, driven by hyperscale and cloud scale-out, and broadening adoption by more than 25,000 companies.
Non-GAAP revenues and margins
Revenue broken down by segment.
Largest increases in Gaming, Data Center, and Professional Visualization revenue.
Largest slowdowns in OEM & Other, and Auto.
Gross Margins
Gross margins have been consistently expanding over the last several quarters, even through supply chain issues. From the earnings call:
“GAAP gross margin was up 40 basis points sequentially, driven by growth in our Data Center Ampere architecture products, which is particularly offset by mix in gaming.”
Here's a look at total revenues and non-GAAP gross margins looked going into yesterday's $7.1 billion revenue print and 67% gross margins achieved.
Automotive Decline
“Moving to Automotive. Q3 revenue of $135 million declined 11% sequentially and increased 8% from the year ago quarter. The sequential decline was primarily driven by AI cockpit revenue, which has negatively been impacted by automotive manufacturers supply constraints.”
Strong Data Center
“Moving to Data Center. Record revenue of $2.9 billion grew 24% sequentially and 55% from the year ago quarter with record revenue across both hyperscale and vertical industries. Strong growth was led by hyperscale customers, fueled by continued rapid adoption of Ampere architecture Tensor Core GPUs for both internal and external workloads. Hyperscale compute revenue doubled year-on-year, driven by the scale out of natural language processing and recommendator models and cloud computing.”
Interesting Bits
“Over 25,000 companies worldwide use NVIDIA AI inference. A great new example is Microsoft Teams, which has nearly 250 million monthly active users. It uses NVIDIA AI to convert speech to text real time during video calls in 28 languages in a cost-effective way.”
Progress on the ARM deal
“Let me discuss Arm. I'll provide you a brief update on our proposed acquisition of Arm. Arm with NVIDIA is a great opportunity for the industry and customers with NVIDIA's scale, capabilities and robust understanding of data center computing, acceleration and AI. We assessed Arm in expanding their reach into data center, IOT and PCs and advanced Arm's IP for decades to come. The combination of our companies can enhance competition in the industry as we work together on further building the world of AI.
Regulators at the U.S. FTC have expressed concerns regarding the transaction and we are engaged in discussions with them regarding remedies to address those concerns. The transactions has been under review by China Antitrust Authority, pending the formal case initiation. Regulators in the U.K. and the EU have declined to approve the transaction in Phase 1 of their reviews on competition concerns. In the U.K., they have also voiced national security concerns. We have begun the Phase 2 process in the EU and U.K. jurisdictions. Despite these concerns and those raised by some Arm licensees, we continue to believe in the merits and the benefits of the acquisition to Arm, to its licensees and to the industry. We believe these concerns and those raised by some Arm licensees -- we continue to believe in the merits and benefits of the ongoing acquisition.”
How they are handling potential supply chain issues
“First of all, we have secured guaranteed supply, very large amounts of it, quite a spectacular amount of it from the world's leading foundry in substrate and packaging and testing certain companies, the integral part of our supply chain. And so we have done that and feel very good about our supply situation, particularly starting in the second half of this year and going forward. I think this whole last year was a wakeup call for everybody to be much more mindful about not taking the supply chain for granted and we were fortunate to have such good partners, but nonetheless we've secured our future.”
Foreward Guidance
NVIDIA’s outlook for the fourth quarter of fiscal 2022 is as follows:
Revenue is expected to be $7.40 billion, plus or minus 2 percent.
GAAP and non-GAAP gross margins are expected to be 65.3 percent and 67.0 percent, respectively, plus or minus 50 basis points.
“Let me turn to the outlook for the fourth quarter of fiscal 2022. We expect sequential growth to be driven by Data Center and Gaming, more than offsetting a decline in CMP. Revenue is expected to be $7.4 billion plus or minus 2%. GAAP and non-GAAP gross margins are expected to be 65.3% and 67%, respectively, plus or minus 50 basis points.”
Final Take
An impressive quarter from Nvidia, but does the stock price already reflect the results? Let's look at the NVDA chart.
Share price has appreciated a vast amount in the last 4-5 months, driven by strong results and strong growth.
From the tone of the earnings call it looked like demand is continuing to surge for the foreseeable future. NVDA's product is bar none the best out there and secular tailwinds are sky-rocketing the growth. It could be with AI, ML, super-computers, Metaverse, etc, the list is endless with catalysts.
In terms of the ARM deal, it seems like they are working with regulators to meet compliance and get this deal through, which would be big for Nvidia.
One might argue that Nvidia's valuation is quite extended trading at fairly high P/E, forward P/E, price/sales, and price/book... but their TAM is still huge and by the looks of it they (and AMD) are stealing everyone's lunch money.
WallStreetBets - Most Mentioned Equities
Not much new going on at the top list other than a re-visit from BABA (down 12% in today's trading).
Could NVDA become as popular as Tesla with it's recent price action?
Lastly at the bottom of the list is IONQ making the top 25. I have heard good things about the potential of this company, but haven't looked into it that much (yet). IONQ has been on a good run and was down 10% in trading today.
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