Investing.com – Shares of chip giant Nvidia (NASDAQ:6497}) jumped sharply on Thursday after the chip company reported better-than-expected earnings.
Certain data show that Nvidia’s revenue and net profit in the fourth quarter exceeded the same period last year, but both indicators have also declined. Meanwhile, for the quarter ended January 2023, Nvidia reported adjusted earnings per share (EPS) of $0.88, down from $1.32 a year earlier but above the consensus estimate of $0.81 per share .
Nvidia Performance Overview: The gaming business performed better than expected
Nvidia’s Q4 revenue was $6.05 billion, beating consensus estimates of $6 billion. That’s down 21 percent from Nvidia’s $7.64 billion in sales last year. However, despite the year-over-year decline in Nvidia’s performance, investors still believe Nvidia is a well-positioned chip stock that can withstand the selling pressure brought on by the economic downturn in PC and chip sales.
For the full fiscal year, Nvidia’s revenue was $26.97 billion, which was basically flat compared to the same period last year. The company’s GAAP diluted EPS was $1.74, down 55% year over year. Additionally, GAAP non-diluted EPS was $3.34, down 25% year over year.
It is important to note that the company’s gaming revenue fell during the quarter, which is expected as sales have continued to rise significantly in recent years. Nvidia’s sales have soared during the COVID-19 pandemic as gamers flock to buy new graphics cards, although that growth has slowed significantly over the past year.
Specific financial report data shows that the tech giant’s game revenue in the fourth quarter was US$1.83 billion, a year-on-year decline of 46%. Nvidia said the decline was due to slower demand for chips from Nvidia partners because they currently have too much inventory. The company also sold fewer chips during the period for game consoles, such as those that power Nintendo Switch devices.
On the other hand, Nvidia’s gaming revenue rose 16% sequentially. Nvidia Chief Financial Officer Colette Kress attributed the year-over-year decline to inventory adjustments, noting that its gaming business has now started to improve, particularly in China. He said games are recovering from the post-pandemic slump, with gamers enthusiastically embracing the new Ada-architecture GPUs with AI neural rendering.
As for Nvidia’s other business units, including professional imaging and automotive chips, it’s still far smaller than its gaming and data center divisions. Last quarter, the company’s professional imaging segment had revenue of $226 million, down 65% year over year; meanwhile, automotive revenue rose 135% year over year to $294 million.
As for the current quarter, Nvidia’s forecast shows that the company expects sales of $6.5 billion, beating analysts’ consensus estimate of $6.33 billion.
At Thursday’s close, Nvidia’s stock price got another boost, rising 14.02% to $236.64.
Analysts on Wall Street are also bullish on the stock, with Goldman Sachs analysts upgrading Nvidia’s rating to “buy” from “neutral,” and analyst reports indicating a positive valuation review for Nvidia along with a possible expansion of the stock’s earnings ratio ( contrary to a historical recovery period), driving the stock to continue to outperform. As of February 22, 2023, Nvidia’s price earnings ratio was 88.31 times, and as of press time on February 23, the price earnings ratio had risen to 99.07 times.
AI will be a huge opportunity for Nvidia
Nvidia’s data center division, which makes artificial intelligence (AI) chips for tech companies, has maintained strong growth rates.
Furthermore, the data center business outlook is expected to continue to benefit from emerging AI software, such as Microsoft’s (NASDAQ: ) OpenAI-powered ChatGPT chatbot. Analysts believe that Nvidia’s high-end graphics processors are good for training and executing machine learning software. And this growth rate is expected to increase further, as the global machine learning industry is expected to reach $209.91 billion in 2022 from $21.17 billion.
Nvidia CEO Jen-Hsun Huang told analysts that AI is currently at an “inflection point” and will encourage more tech companies to buy Nvidia chips and promote ML software development in the future.
In the opinion of Rosenblatt analysts, Nvidia is facing “the biggest technological change the world can ever see”, and the company will realize the transformation of artificial intelligence in all aspects. Nvidia also said revenue from the company’s data center business rose 11% year over year to $3.62 billion, as the unit saw stronger demand from US cloud service providers.
It is also important to note that customers will be able to use the Nvidia DGX Cloud to access the Nvidia DGX AI supercomputer through a browser. The cloud service is already available on Oracle (NYSE: ) Cloud Infrastructure and is expected to be available on Microsoft Azure and Google (NASDAQ: ) Cloud Platforms.
The AI Platform software layer will give users access to Nvidia AI Enterprise, allowing them to train and deploy large language models or other AI workloads. Jensen Huang said the company wanted to build an infrastructure that would make AI accessible to all enterprise customers.
Summarize
Benefiting from the outstanding performance, Nvidia’s stock price rose sharply on Thursday. Analysts continue to highlight Nvidia’s upcoming artificial intelligence opportunity, which could drive a significant acceleration in the company’s revenue growth over the next few years.
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(Translation: Li Shanwen)
