Nvidia AI is the only show, and it is the real king of chips

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Text |Dolphin Investment Research.

1. Overall performance: revenue & gross profit margin both exceeded expectationsNvidia posted revenue of $22.1 billion in the quarter, a year-on-year increase of 265%, exceeding market expectations ($20.4 billion). Nvidia achieved gross margin (GAAP) of 76% in the quarter, also exceeding market expectations (752%）The gross profit margin reached a record high, mainly due to the strong performance of the data center business, which led to the overall gross margin improvement。The net profit of this financial report was 12.3 billion US dollars, an increase of 769% year-on-yearThe profit side is also an all-time high

2. Core business: data centers continue to rise. The data center business accounts for 83% of the company's revenue, which is the company's core business.

1) The game business grew by 56% year-over-year in the quarter5%, continue to pick upDolphin Jun believes that the main reasons for the recovery of the company's game business in this quarter are: a) the recovery of the PC market, which has also increased the demand for GPUs to a certain extent; b) The recent currency value** has also increased the demand for some graphics cards

2) Data center business grew 409% year-over-year in the quarter, driven by strong demand for large models, recommendation engines, and generative AI.

3. Main financial indicators: the expense ratio hit a record low. Nvidia's operating expense ratio continued to decline to 14 in the quarter4% low. This is mainly due to the sharp increase in revenue, which has significantly reduced the proportion of expenses. The current proportion of the inventory side is at a historical low, which also indicates that the company's current product situation is still in short supply

4. Guidance for the next quarterNvidia expects revenue of $24 billion (plus or minus 2%) in the first quarter of fiscal 2025, a year-on-year increase of 234%, exceeding market expectations of $21.8 billion; Gross margin in the first quarter was 763% (plus or minus 0.)5%), which also exceeded market expectations by 751%, a new high

Overall view: Nvidia's earnings report once again exceeded market expectations. The two core indicators of revenue and gross margin in the quarter exceeded market expectations, mainly due to the high growth of the data center business. The company's inventory side has improved, but compared to the high growth of revenueInventory revenues continued to decline. At present, the company's products are still in short supply

In addition to the earnings figures, the company's guidance is also good. Nvidia gave $24 billion and 76.00 percent for revenue and gross margin for the next quarterThe 3% guidance, both of which are record highs for the company。Revenue for the next quarter was $24 billion, up 234% year-over-yearBeat market expectations ($21.8 billion).；The gross profit margin for the next quarter was 76about 3%, an increase of 11 year-on-year7pct，, also exceeding market expectations (751%）。

Compared with the sluggish guidance of Intel and AMD, NVIDIA's data center and AI business continues to grow at a high rate, which can also see the true strength of AI chips. In the comparison of data center and AI revenue of the three companies, the proportion of Nvidia's revenue further climbed to 746%, definitely ahead of the other two.

The bright earnings data and guidance are bound to inject confidence into the market, and the stock price will also benefit in the short termAlthough the company's share price has more than quadrupled since the beginning of last year, it has been supported by performance in the process. Even if the current market capitalization reaches 1More than 6 trillion, but driven by data centers and AI, the company's current market value corresponds to less than 40 times the PE.

Investment confidence in high-growth stocks mainly comes from the continued performance of industries and companies that exceed expectations, but the high growth of any industry will not last for a long time. While the company's results and guidance exceeded market expectations, sequential growth also slowed. In terms of guidance, sequential revenue growth in the next quarter is likely to return to single digits, while gross margin will also stabilize around 76%.。When the growth of high-growth stocks slows significantly, the risk of investing increases accordingly.

On the whole, although Nvidia has a large increase in the early stage, the continuous high performance growth can support the company's current stock price. However, because the high growth will not last forever, as the performance growth slows, the company's stock price will not be able to double the performance of the past. Bright earnings data and guidance can bring confidence to the market in the short term. But if the stock price is to go to the next level, it still needs a stronger performance from the company.

Dolphin's specific analysis of NVIDIA's financial report is detailed below:

1.1 Operating incomeIn the fourth quarter of fiscal 2024, Nvidia reported revenue of 2210.3 billion US dollars, a year-on-year increase of 2653%, exceeding the previous guidance of $20 billion。The company's revenue surged again in the quarter, mainly due to the strong performance of its downstream data center business.

Looking ahead to the first quarter of fiscal 2025, the company's revenue will continue to grow. Nvidia expects first-quarter revenue of $24 billion (plus or minus 2%), a year-on-year increase of 234%., exceeding market expectations of $21.8 billion。Dolphin Jun believes that the revenue growth in the next quarter will still be mainly driven by the data center business.

1.2 Gross margin (GAAP): Nvidia achieved 76% gross margin (GAAP) in the fourth quarter of fiscal 2024, exceeding the upper end of guidance (74%-75%), and continued to record gross margin for the quarter.

The company's previous sharp decline in gross profit margin was mainly due to the company's inventory write-down. When the gross profit margin returns to 63%-64%, inventory is no longer an issue. Combined with the company's inventory situation, Nvidia's inventory continued to increase to $5.3 billion in the quarter. Compared with the substantial increase in revenue, NVIDIA's current inventory level is still very low, and it is still in short supply

Nvidia's gross margin guidance for the first quarter of fiscal 2025 is 763% (plus or minus 0.)5%), exceeding market expectations (751%）。Driven by demand for AI and other factors, the company's gross profit margin has increased from 65% to about 76%, and its profitability has increased significantly.

1.3. Business indicators

1) Inventory revenue: 24% in the quarter, down 2pct quarter-on-quarter。Although the company's inventory continued to increase to $5.3 billion this quarter, combined with the company's high-growth revenue performance, the company's inventory proportion is at a historical low, which also indicates that the company's current products are still in short supply;

2) Accounts receivable revenue: 45% in the quarter, down 1pct quarter-on-quarter。The proportion of accounts receivable declined, and the company's receivables continued to improve.

Driven by demand such as AI, Nvidia's data center business continued to expand its share of the company's revenue in the fourth quarter of fiscal 2024, reaching 833%。Although the gaming business also grew in the quarter, the proportion was still reduced to less than 2% by the high-growth data center. Data centers have become the business that has the greatest impact on the company.

2.1 Data Center Business: Nvidia's data center business achieved revenue of $18.4 billion in the fourth quarter of fiscal 2024, up 409% year-over-year. Nvidia's data center business reached a record high in the quarter, primarily due to increased shipments of NVIDIA Hopper GPU computing platforms for training and inference of large language models, recommendation engines, and generative AI applications, as well as Infiniband's end-to-end solutions.

In the high-growth data center business, cloud service providers account for more than half of the revenue. Strong demand is driven by enterprise software and consumer internet applications, as well as multiple industry verticals including automotive, financial services, and healthcare. Customers across a wide range of industries can access NVIDIA AI infrastructure both in the cloud and on-premises. Sales of the data center business in China declined significantly during the quarter due to licensing requirements in the United States**.

From the perspective of the capital expenditure of the four giants of Meta, Google, Microsoft and Amazon, the total capital expenditure of the four companies reached $43.8 billion in the quarter, a year-on-year increase of 121%。Among them, the capital expenditure of Google and Microsoft is in a state of continuous increase. With more than half of Nvidia's data center business revenue coming from cloud service providers, the company will benefit from the growth in the giant's capital expenditure.

Combined with the company's strong revenue guidance of $24 billion for the next quarterDolphin believes that this is mainly due to the growth in demand for data center business。In the current state of relatively tight supply, Nvidia's data center business revenue is expected to reach $20 billion in the next quarter.

2.2. Gaming business: Nvidia's gaming business achieved revenue of 28 in the fourth quarter of fiscal 2024$6.5 billion, a year-on-year increase of 565%。After several quarters of downturn, the game business has picked up and has come out of the "predicament".

Shipments in the global PC market have begun to stop falling in the fourth quarter. According to the latest data from IDC, the global PC market shipped 67 million units in the fourth quarter of 2023, almost flat year-on-year. Demand began to come out of the bottom, and PC shipments recovered to more than 65 million units.

2.3 Automotive businessIn the fourth quarter of fiscal 2024, Nvidia's automotive business achieved revenue of 28.1 billion US dollars, down 44%，NVIDIA's automotive business mainly derives revenue from autonomous driving and artificial intelligence cockpit solutions. Although the number of autonomous driving platforms is still growing, it is still declining due to the impact of AI cockpit.

Despite the year-over-year decline in the company's automotive business, it currently accounts for a small percentage of revenue (less than 2%)。At present, NVIDIA's performance is still mainly focused on the performance of the data center and gaming business.

3.1 Operating margin

Nvidia's operating margin recovered to 61 in the fourth quarter of fiscal 20246%Another all-time highThe recovery in operating margin in the quarter was mainly due to the dual impact of higher gross margin and lower expense ratio.

From the analysis of the composition of the operating profit margin, the specific changes:

"Operating profit margin = gross profit margin - R&D expense ratio - proportion of selling, administrative and other expenses".

1) Gross margin: 76% in the quarter, an increase of 2pct month-on-month. After the gross profit margin returned to the normal range, the "short supply" of the data center business drove the company's gross profit margin to continue to rise;

2) R&D expense ratio: 112%, down 15pct。The absolute value of the company's R&D expenditure has increased, but due to the sharp increase in revenue, the expense ratio has decreased significantly;

3) Proportion of selling, administrative and other expenses: 32%, down 06pct。Although the absolute value has improved, the company's selling expense ratio has entered the historical bottom range.

The company's operating expense guidance for the first quarter of fiscal 2025 continues to move higher to $3.5 billion, but the operating expense ratio is expected to remain at 14.5 billion in the next quarter compared to revenue growthA low of around 6%. The rapid growth of the revenue side has lowered the expense ratio.

3.2 Net income (GAAP) ratio

Nvidia's net profit for the fourth quarter of fiscal 2024 was 122US$8.5 billion, a seven-fold year-on-year increase, and the net profit margin continued to improve to 55.5 in the quarter6%。In the quarter, the company's revenue increased by 265% year-on-year, and the gross profit margin reached a record high. The operating expense ratio fell to a historical low, which led to a significant increase in profit.