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NVIDIA Corp. (NVDA)

November 21, 2024Processing

Compared to: Advanced Micro Devices, Inc. (AMD) | Taiwan Semiconductor Manufacturing Co., Ltd. (TSM) | Technology Select Sector SPDR Fund (XLK)

Key takeaways

Evaluation summary
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Price history
Fundamentals
Insights
  • NVIDIA is a leading provider of accelerated computing platforms and solutions, with a focus on data centers, gaming, professional visualization, and automotive markets.
  • The company is experiencing robust demand for its data center products, particularly its new Hopper GPU architecture, driven by the rapid growth of AI and generative AI applications.
  • NVIDIA's financial performance is strong, with high revenue growth and profitability, but gross margins have been impacted by inventory provisions and product mix shifts.
  • The company's strong cash flow generation and low debt levels provide it with significant financial flexibility to navigate economic downturns and pursue future investments.
  • Key risks include the ability to accurately forecast demand, manage a complex global supply chain, navigate evolving trade restrictions, and mitigate legal/regulatory risks and cybersecurity threats.
  • NVIDIA's future outlook is positive, driven by the strong demand for its data center products and continued investments in new technologies.
Analysis
  • Revenue - NVIDIA's revenue is growing rapidly, driven by strong demand for its data center products, particularly its new Hopper GPU architecture. - The company is experiencing robust demand for its data center products, particularly its new Hopper GPU architecture, driven by the rapid growth of AI and generative AI applications. - NVIDIA's revenue growth is driven by the strong demand for its new Hopper architecture and the expansion of its data center product portfolio. - The company's revenue growth is consistent with its strategic objectives of leading the transition to accelerated computing and generative AI.
    • Profitability
      • NVIDIA is highly profitable, with strong net income growth and expanding margins.
      • The company is effectively managing its costs and benefiting from the high demand for its products, resulting in expanding gross margins.
      • NVIDIA's profitability is strong, with high net income growth and expanding margins.
      • The company's strong profitability and expanding margins indicate a healthy financial position and a bright future.
    • Liquidity
      • NVIDIA's liquidity position is strong, with a high current ratio and quick ratio, indicating ample resources to meet short-term obligations.
      • The company's strong operating cash flow provides ample liquidity to meet short-term obligations.
    • Solvency
      • The company's long-term solvency is also strong, with a low debt-to-equity ratio and a healthy debt-to-EBITDA ratio.
      • NVIDIA's strong free cash flow generation and low debt levels indicate a healthy long-term solvency position.
    • Operational Efficiency
      • NVIDIA's asset utilization efficiency is high, as evidenced by its strong return on assets, return on equity, and return on invested capital.
      • The company is highly efficient in using its assets to generate profits.
    • Cash Flow Analysis
      • NVIDIA's cash flows are strong and growing, driven by robust revenue growth and efficient working capital management.
      • The company is investing heavily in its growth, with significant capital expenditures, likely related to new product development and expansion of its data center infrastructure.
      • NVIDIA's strong free cash flow generation provides ample capacity for debt repayment, supports sustainable dividend growth, and funds continued investments in organic growth initiatives.
    • Risk Factors
      • NVIDIA faces significant supply chain challenges and risks due to semiconductor industry constraints, extended lead times, and complex global trade regulations, especially export controls targeting China.
      • The company's reliance on third-party suppliers and long manufacturing lead times creates supply chain vulnerabilities.
      • NVIDIA's financial performance has been strong, with high revenue growth and profitability, but gross margins have been impacted by inventory provisions and product mix shifts.
      • Key risks include the ability to accurately forecast demand, manage a complex global supply chain, navigate evolving trade restrictions, and mitigate legal/regulatory risks and cybersecurity threats.
    • Future Outlook
      • NVIDIA's future outlook is positive, driven by the strong demand for its data center products and continued investments in new technologies.
      • The company's strong financial position provides it with significant financial flexibility to pursue strategic initiatives, such as acquisitions, product development, and market expansion.
      • NVIDIA's strategic initiatives, such as the launch of the Blackwell platform and expansion of its software and services business, are expected to drive future earnings growth.
Financial statements
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Public filings
  • NVIDIA is a leading provider of accelerated computing platforms and solutions, with a focus on data centers, gaming, professional visualization, and automotive markets
  • The company is experiencing robust demand for its data center products, particularly its new Hopper GPU architecture, driven by the rapid growth of AI and generative AI applications
  • However, NVIDIA faces significant supply chain challenges and risks due to semiconductor industry constraints, extended lead times, and complex global trade regulations, especially export controls targeting China
  • The company's financial performance has been strong, with high revenue growth and profitability, but gross margins have been impacted by inventory provisions and product mix shifts
  • NVIDIA continues to invest heavily in R&D and new product development to maintain its technology leadership, while also returning capital to shareholders through share repurchases
  • Key risks include the ability to accurately forecast demand, manage a complex global supply chain, navigate evolving trade restrictions, and mitigate legal/regulatory risks and cybersecurity threats

Core Business and Operations:

  • NVIDIA is a technology company that pioneered accelerated computing to help solve complex computational problems
  • The company operates in two main segments: Compute & Networking (data center, automotive, robotics) and Graphics (gaming, professional visualization)
  • NVIDIA's platforms incorporate processors, interconnects, software, algorithms, systems and services to deliver value across its target markets
  • Major customers include public cloud providers, consumer internet companies, enterprises, startups, OEMs, ODMs, system integrators, and distributors
  • Key competitors include AMD, Intel, Huawei, Qualcomm, and companies with internal chip design capabilities

Industry and Market Trends:

  • Rapid advancements in accelerated computing, AI, and generative AI models are driving increased demand for NVIDIA's data center products
  • Geopolitical tensions and export control restrictions, particularly related to China, pose significant risks and challenges for NVIDIA's global supply chain and market access
  • Semiconductor industry is experiencing supply chain constraints, extended lead times, and uncertainty around component availability
  • Regulatory scrutiny of AI technologies and their responsible use is increasing, which could lead to new compliance requirements

Recent Events:

  • Introduced new data center GPU architectures (Hopper, Blackwell) to meet growing demand for AI and accelerated computing
  • Expanded data center product portfolio to offer solutions not subject to export control restrictions
  • Experienced supply constraints and production yield issues with Blackwell GPU, impacting gross margins
  • Continued to invest heavily in R&D and engineering for new product development

Risk Factors:

  • Failure to accurately estimate customer demand leading to supply/demand mismatches and inventory issues
  • Reliance on third-party suppliers and long manufacturing lead times creating supply chain vulnerabilities
  • Exposure to complex and evolving global trade regulations, export controls, and geopolitical tensions
  • Potential for product defects, quality issues, and warranty/liability claims
  • Competition from larger, diversified competitors and new market entrants
  • Cybersecurity breaches and data protection/privacy compliance risks

Legal Matters:

  • Ongoing securities class action lawsuit related to alleged false/misleading statements about channel inventory and cryptocurrency mining impact
  • Derivative lawsuits related to the securities class action, alleging breach of fiduciary duty and other claims
  • No material accrued contingent liabilities associated with legal proceedings as of the latest reporting period

Management's Discussion and Analysis:

  • Revenue growth driven by strong demand for data center compute and networking products, particularly Hopper architecture
  • Gross margins impacted by inventory provisions, product mix shifts, and supply chain constraints
  • Operating expenses increased significantly due to higher compensation, benefits, and engineering costs
  • Substantial cash flow from operations and continued share repurchase program to offset dilution
  • Liquidity position remains strong with $38.5 billion in cash, cash equivalents and marketable securities
Earnings calls

Earnings Report 2025Q2 (2024-08-28)

Key takeaways
  • NVIDIA delivered another record quarter, with strong growth across its data center and gaming segments, driven by robust demand for its Hopper architecture and anticipation for the upcoming Blackwell platform.
  • The data center business was the primary growth engine, with revenue up 154% year-over-year, fueled by strong cloud, consumer internet, and enterprise adoption of NVIDIA's GPU computing and networking solutions.
  • The company is seeing significant momentum in generative AI, with frontier model makers, cloud service providers, and enterprises rapidly adopting NVIDIA's infrastructure to power a wide range of applications, from chatbots and recommender systems to drug discovery and enterprise productivity tools.
  • NVIDIA is positioning Blackwell as a transformative AI infrastructure platform, with a comprehensive suite of integrated components, including CPUs, GPUs, networking, and software, designed to enable customers to build large-scale, high-performance AI factories.
  • The company expects Blackwell to begin ramping in Q4, with several billion dollars in revenue, and anticipates strong demand for the platform to continue into fiscal 2026, as customers race to modernize their computing infrastructure and capitalize on the generative AI revolution.
  • NVIDIA's software and services business is also gaining traction, with the NVIDIA AI Enterprise platform expected to reach a $2 billion annual run rate by the end of the year, highlighting the company's ability to monetize its ecosystem and provide value-added solutions to customers.
  • Overall, NVIDIA's strong financial performance, strategic initiatives, and management's confidence in the company's ability to lead the transition to accelerated computing and generative AI suggest a promising outlook for the company's future growth and market dominance.
Summary
  • Financial Performance:

    • Revenue of $30 billion, up 15% sequentially and 122% year-over-year, exceeding the outlook of $28 billion
    • Data center revenue of $26.3 billion, a record, up 16% sequentially and 154% year-over-year
    • Gaming revenue of $2.88 billion, up 9% sequentially and 16% year-over-year
    • GAAP gross margins of 75.1% and non-GAAP gross margins of 75.7%, down sequentially due to product mix and inventory provisions
  • Revenue Drivers:

    • Data center revenue growth driven by strong demand for NVIDIA Hopper, GPU computing, and networking platforms
    • Compute and networking revenue more than doubled year-over-year
    • Cloud service providers, consumer internet, and enterprise companies accounted for over 50% of data center revenue
    • Gaming revenue growth across console, notebook, and desktop segments
  • Profit Margins and Cost Management:

    • Sequentially higher GAAP and non-GAAP operating expenses, primarily due to higher compensation-related costs
    • Expect gross margins to be in the mid-70% range for the full year, with a potential decline in Q4 due to product mix
  • Guidance and Outlook:

    • Q3 revenue guidance of $32.5 billion, plus or minus 2%, incorporating continued Hopper growth and initial Blackwell sampling
    • Expect Blackwell production ramp to begin in Q4, with several billion dollars in Blackwell revenue
    • Full-year operating expenses expected to grow in the mid-to-upper 40% range
  • Strategic Initiatives:

    • Announced new NVIDIA AI Foundry service to enable enterprises to leverage open-source frontier-level models
    • Introduced NVIDIA NIM agent Blueprints, a catalog of customizable reference applications for enterprise generative AI
    • Expanding NVIDIA Omniverse capabilities with new USD NIMs and connectors
  • Management Commentary:

    • CEO Jensen Huang emphasized the transition from general-purpose computing to accelerated computing and the rise of generative AI
    • Highlighted the strong demand and anticipation for the Blackwell platform, which is designed as an AI infrastructure platform
  • Industry and Market Conditions:

    • Continued growth in data processing, recommender systems, and generative AI applications driving demand for NVIDIA's accelerated computing solutions
    • Sovereign AI opportunities expanding as countries recognize the importance of AI infrastructure
  • Q&A Session Highlights:

    • Discussions around the Blackwell product ramp, including changes to the GPU mask and the expected impact on revenue
    • Inquiries about customer return on investment and the sustainability of CapEx spending in the generative AI market
    • Clarification on the transition from Hopper to Blackwell and the mix of Rack Scale systems
Comparative analysis
Benchmarks (as of 2024-11-18)
Technology Select Sector SPDR Fund (XLK)
  • Performance Comparison:
    • NVDA has consistently outperformed XLK over all the periods analyzed, demonstrating a strong performance relative to the broader technology sector. This outperformance has been particularly significant in the longer-term periods, indicating a strong growth trajectory for NVDA.
  • Risk and Return Analysis:
    • NVDA has provided significantly higher annualized returns than XLK over all the periods analyzed. This suggests that NVDA has been a strong performer in terms of generating returns for investors.
    • NVDA has also exhibited higher annualized volatility than XLK, indicating that NVDA's price movements are more volatile than the broader technology sector. This suggests that NVDA carries a higher level of risk compared to XLK.
    • NVDA's maximum drawdown of 66.34% in Q4 2022 is significantly higher than XLK's maximum drawdown of 33.56% in Q3 2022. This indicates that NVDA is more susceptible to significant price declines than XLK, further highlighting its higher risk profile.
  • Risk-Adjusted Performance:
    • NVDA's Sharpe Ratio has generally been higher than XLK's, suggesting that NVDA has offered a better risk-adjusted return over the period. This indicates that NVDA has been able to generate higher returns for investors while taking on a higher level of risk.
    • NVDA's beta value has consistently been higher than XLK's, indicating that NVDA is more sensitive to market movements than XLK. This suggests that NVDA's price is likely to fluctuate more dramatically in response to market changes, further highlighting its higher risk profile.
  • Overall Assessment:
    • NVDA has demonstrated strong performance and growth potential, consistently outperforming XLK over all the periods analyzed. However, it also carries a higher level of risk, as evidenced by its higher volatility, maximum drawdown, and beta. Investors should carefully consider their risk tolerance and investment objectives before investing in NVDA.
    • NVDA's recent trends suggest that its volatility and sensitivity to market movements have been increasing. This could be attributed to factors such as the ongoing global economic uncertainty, the competitive landscape in the semiconductor industry, and the company's own growth initiatives. Investors should monitor these trends closely to assess the potential impact on NVDA's future performance.
Peers Price History(as of 2024-11-18)
  • Performance Comparison: NVDA has consistently outperformed both AMD and TSM over the past three years, demonstrating strong growth and market leadership. This outperformance is particularly evident in the longer-term periods, such as the 2-year and 3-year returns. While NVDA has experienced some short-term underperformance, its overall performance has been consistently strong.
  • Risk and Return Analysis: NVDA has provided higher annualized returns than both AMD and TSM over the past three years. However, this higher return comes with a higher level of risk, as evidenced by NVDA's consistently higher annualized volatility. NVDA's maximum drawdown has also been the largest among the three companies, indicating that it is more susceptible to significant price declines.
  • Risk-Adjusted Performance: Despite its higher risk, NVDA has consistently offered a better risk-adjusted return than AMD and TSM, as indicated by its higher Sharpe ratio. This suggests that NVDA's higher returns have outweighed its higher risk. NVDA's higher beta value indicates that it is more sensitive to market movements than its peers, further highlighting its higher risk profile.
  • Overall Assessment: NVDA has been a strong performer in the semiconductor industry, demonstrating consistent growth and market leadership. However, this performance comes with a higher level of risk compared to its peers. NVDA's higher volatility and maximum drawdown suggest that investors should be aware of the potential for significant price declines. Despite this risk, NVDA's higher Sharpe ratio indicates that its higher returns have outweighed its higher risk. Investors seeking high growth potential should consider NVDA, but they should also be prepared for higher volatility and potential drawdowns.
Peers Fundamentals(as of 2024-07-31)
  1. Market Position and Size:

    • NVDA is a dominant player in the semiconductor industry, with a market capitalization significantly larger than its peers, AMD and TSM.
    • NVDA's market cap is justified by its superior revenue generation and profitability compared to its peers.
    • NVDA's market position within the peer group is that of a clear leader.
  2. Profitability and Efficiency:

    • NVDA exhibits significantly higher profitability metrics than both its peers and the industry average, indicating strong cost control and efficient operations.
    • NVDA's profitability metrics are impressive considering its size and revenue, suggesting a highly efficient and scalable business model.
    • NVDA significantly overperforms in profitability metrics compared to both peers and industry standards.
  3. Financial Health and Stability:

    • NVDA demonstrates strong liquidity and solvency metrics, with ample resources to meet short-term obligations and a manageable debt position.
    • NVDA's liquidity and debt position are favorable in relation to its market cap and peer group, indicating a healthy financial structure.
  4. Valuation and Market Perception:

    • NVDA's valuation metrics are generally higher than both its peers and the industry average, suggesting that the market is willing to pay a premium for its growth prospects and profitability.
    • NVDA's valuation is high in the context of its market cap, peer group, and industry standards, reflecting its strong financial performance, growth potential, and dominant market position.
  5. Cash Flow and Capital Management:

    • NVDA generates significantly higher cash flow metrics than its peers, considering their respective market caps, indicating a strong ability to fund future growth initiatives and return value to shareholders.
    • NVDA's cash flow generation strength is impressive relative to its size, peers, and industry norms, indicating a robust business model and a strong ability to fund future growth initiatives.
  6. Growth and Future Prospects:

    • NVDA consistently shows higher growth compared to the peer group average across most metrics, indicating a strong and accelerating growth trajectory.
    • NVDA's growth is balanced across different metrics, suggesting a sustainable and competitive advantage.
    • NVDA's growth profile is impressive, with strong and accelerating growth across most metrics, suggesting a sustainable and competitive advantage.
  7. Potential for Investment:

    • NVDA presents an attractive investment opportunity, considering its strong financial performance, growth potential, and dominant market position.
    • Its high profitability, strong returns on capital, robust cash flow generation, and manageable debt position suggest a sustainable and competitive advantage.
    • NVDA's growth trajectory is impressive, with accelerating growth across most metrics, indicating a strong future outlook.
  8. Key Risks and Considerations:

    • NVDA's high valuation metrics, such as Price To Earnings and Price to Book Ratio, could be a potential risk if expectations are not met.
    • NVDA's growth may be subject to cyclical factors, as evidenced by significant fluctuations in year-over-year growth rates for certain metrics.
    • NVDA's Total Asset Growth and EBIT Margin Growth are lower than the peer group average, suggesting potential areas for improvement.
  9. Overall Assessment:

    • NVDA is a financially strong and dominant player in the semiconductor industry, with a robust business model, strong growth prospects, and a sustainable competitive advantage.
    • Its financial performance consistently outperforms its peers and industry averages, reflecting its efficient operations and dominant market position.
    • While NVDA's high valuation presents a potential risk, its strong fundamentals and growth trajectory make it an attractive investment opportunity.
Comparison metrics