Pro Perspectives 2/20/24





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February 20, 2024

We get Nvidia Q4 earnings tomorrow after the close.
Remember, it was on the Q1 earnings call, nine months ago, that Nvidia's CEO shocked the world declaring "the beginning of a major technology era."  He told us there was a "rebirth of the computer industry" underway, where "AI has reinvented computing from the ground up."

And he told us there was a "retooling" going on across the economy, the beginning of a 10-year transition of the world's $1 trillion data center, to accelerated computing.
And he had the numbers to back it up.  They grew revenues by 19% in Q1 compared to just the prior quarter, and they guided to 52% growth for Q2 (shockingly huge).  From the "steep" data center demand, they expected revenues to jump from $7.2 billion to $11 billion in just one quarter.  They did $13.5 billion. 
They expected revenues to jump to $16 billion for Q3.  They did $18.1 billion. 
Their guidance for tomorrow is $20 billion (in Q4 revenue).  Here's what this revenue growth in the Nvidia data center business looks like, which is more than 80% of the Nvidia business now …
So, with this hyper-growth of the past three quarters, there are two things that have built into market expectations for tomorrow's report (which led to some profit taking today):  1) Government imposed export restrictions during the period, which will affect about a quarter of Nvidia's data center revenue (mostly China).  And, 2) the pressure on Nvidia to continue delivering the capacity to meet what is said to be insatiable demand.
That said, the former likely helped with the latter (the export controls likely relieved some pressure on capacity).
How expensive is Nvidia stock?  If we use last quarter's net income margin of 51%, hitting the revenue number in Q4 will deliver more than $10 billion in net income in the quarter.  On that annual run rate, it would value the stock at about 43 times earnings not terribly expensive for a company that has three consecutive quarters of triple-digit year-over-year growth, and at least another one coming (next quarter).  
More importantly, we should expect Jensen Huang (Nvidia CEO) to educate the world in tomorrow's earnings call, on the status and next waves of the technology revolution.