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Nvidia Earnings Report Analysis

Is Geopolitical Risk Propertly Priced into NVDA Valuation?

Nvidia, a leading technology company, recently released its Q3 earnings report, providing insights into its financial performance and future prospects. In this analysis, we’ll delve into various aspects of Nvidia’s earnings, including revenue, profit analysis, data center revenue, stock performance, semiconductor industry performance, upcoming earnings expectations, data center contribution to earnings, and the company’s plans for 2023 and 2024.

Nvidia’s Q3 earnings showcased strong growth in revenue and profit. The company reported a revenue of $20 billion, surpassing Wall Street’s expectations of about $18 billion. On the high end, expectations by some analyst were up to $21 billion. This growth was largely driven by robust sales in the data center and AI segments.

Nvidia’s data center revenue demonstrated impressive performance, contributing significantly to the overall earnings. The company’s innovative offerings in the data center space, including large language models and generative AI technologies, have fueled this revenue growth.

Following the release of the earnings report, Nvidia’s stock declined, reflecting a failure to beat market expectations in the company’s performance and future prospects. Facing very lofty expectations, we were not surprised that the results did move the stock higher.

NVDIA Stock Chart

Financially, the company is solid since it holds about $16.0 billion in cash and investments versus liabilities of $9.7 billion in short-term and long-term debt. Since the semiconductor industry is very cyclical, companies in this space need a financial cushion.

However, the elephant in the room is what will happen to China sales. Nvidia gets about 25% of its sales from China and with US restrictions now in place, how will that affect Nvidia? The market in our view has not fully priced this geopolitical risk, thus we think the next earnings report will reflect this risk better.

If Nvidia dissapoints in terms of finding a way around the US chip restrictions to China then the market sentiment will get hit  and we expect the recent rebound in stock prices to turn negative.   There is already news that a new version of the chip for exports to China has been delayed.

Market Share, Competition and Future

Nvidia continues to maintain a substantial market share in the semiconductor industry, however it is facing competition from other major players. For example, Microsoft and AMD are working on competing products. In fact, Microsoft has recently unvailed its own AI chip. We should also expect other leading hyperscale vendors such as Amazon AWS, Google, Meta to look for ways to further reduce their reliance on Nvidia in the future.

Looking ahead, Nvidia is poised for further growth in the semiconductor industry, with projections indicating sustained expansion and influence in the world’s largest industries. The company’s commitment to next-generation GPU development and generative AI technologies will be pivotal in realizing these projections. However, we should be cautious here since one of the concerns was have the large buyers of the expensive AI chip already bought? This could mean that we should expect the growth rate to slow down.

Analysts anticipate continued growth in Nvidia’s upcoming earnings, driven by its strong performance in the data center and AI segments. The company’s strategic investments in new technologies and innovations are expected to yield positive results for its future earnings.

Nvidia’s data center sales have experienced remarkable growth, reflecting the strong demand for its innovative solutions. The company’s H100 GPUs and HGX platforms have garnered substantial interest, contributing significantly to its data center revenue.

The introduction of new data center offerings, such as the H200 GPUs and advanced compute capabilities, has further bolstered Nvidia’s data center revenue. These offerings have resonated well with enterprise software companies and consumer internet companies, driving increased adoption.

Looking ahead to the next quarter and beyond, Nvidia anticipates continued growth in data center sales. Despite export restrictions potentially impacting sales to certain destinations, the company’s strong position in the market is expected to mitigate any significant impact on its overall data center revenue.