Nvidia Earnings: AI Demand Smashes Forecasts Again

We
raise
our
fair
value
estimate
to
$1,050
from
$910
as
we
model
stronger
data
centre
revenue
growth
over
the
next
several
quarters
while
maintaining
our
longer-term
growth
rates
from
a
higher
installed
base
of
AI
equipment.
Shares
were
up
about
6%
on
the
earnings
report,
and
we
think
the
reaction
is
justified
and
view
shares
as
fairly
valued.

Revenue
in
the
April
quarter
was
$26.0
billion,
up
18%
sequentially
as
more
supply
for
Nvidia’s
graphics
processing
units
came
online.
Revenue
was
up
262%
year
over
year
and
ahead
of
guidance
of
$24.0
billion.
Data
centre
revenue
remains
the
focus,
coming
in
at
$22.6
billion
(87%
of
total
revenue),
up
23%
sequentially
and
427%
year
on
year.
Demand
continues
from
cloud
computing
leaders
as
they
support
their
customers
in
building
AI
models,
as
well
as
from
enterprises,
consumer
internet
leaders
like
Meta
Platforms
META,
and
sovereign
governments
building
AI
into
telecom
and
other
services.
Nvidia
still
wields
exceptional
pricing
power,
with
an
adjusted
gross
margin
of
up
220
basis
points
sequentially
to
78.9%,
ahead
of
guidance
of
77%.

Nvidia
expects
July-quarter
revenue
to
be
$28.0
billion,
up
8%
sequentially
and
107%
year
on
year,
and
ahead
of
FactSet
consensus
estimates
of
$26.6
billion.
We
anticipate
Nvidia
will
once
again
beat
these
estimates,
and
we
model
$29.7
billion
of
revenue.
The
firm
has
earned
at
least
$3
billion
of
incremental
data
centre
revenue
in
each
of
the
past
three
quarters,
driven
by
AI
demand,
and
we
anticipate
that
a
fourth
similar
quarter
is
on
the
near-term
horizon.

Nvidia’s
Stock
Split
Starts
in
June

For
the
July
quarter,
the
adjusted
gross
margin
is
expected
to
fall
to
75.5%,
likely
due
to
higher
costs
associated
with
the
rollout
of
Blackwell
products.
Still,
we
think
guidance
for
July
implies
a
62%
adjusted
operating
margin,
which
is
spectacular
by
any
measure.
On
the
financial
and
capital
allocation
front,
Nvidia
raised
its
dividend
by
150%
but
still
sits
at
a
relatively
immaterial
$0.40
per
share
annually.
The
company
will
also
conduct
a
10-for-1
stock
split
at
the
start
of
trading
on
Monday,
June
10.

Given
Nvidia’s
astronomical
growth,
we
continue
to
assess
the
risk
of
companies
buying
too
many
AI
GPUs
too
soon,
leading
to
an
air
pocket
and
excess
inventory
at
some
point
in
the
future.
We
see
no
such
signs
today.
Leading
cloud
companies
have
all
boosted
their
capital
expenditure
plans
in
2024
to
support
AI
investments,
and
it
still
appears
that
this
spending
is
being
funneled
to
Nvidia.
Beyond
the
mega-cap
cloud
leaders,
enterprises
also
seem
to
be
boosting
capex
for
similar
reasons.
Even
as
new
Blackwell
products
are
rolling
out,
management
is
confident
that
it
will
still
sell
its
generation
of
Hopper
H100
and
H200
products
in
the
meantime.

For
fiscal
2025
(which
ends
January
2025
and
effectively
pertains
to
calendar
2024),
we
raise
our
forecast
for
data
centre
revenue
to
nearly
$111
billion,
up
from
$101
billion
previously,
and
up
from
$47
billion
generated
last
year
and
only
$15
billion
two
years
ago.
We
anticipate
that
Nvidia
will
grow
revenue
in
this
segment
by
an
incremental
$3
billion
or
so
per
quarter
through
the
fiscal
year
as
its
supply
chain
partners
build
out
additional
capacity
to
support
Nvidia’s
roadmap.
We
previously
assumed
another
strong
year
of
growth
in
fiscal
2026.
Still,
management’s
insight
into
the
Blackwell
rollout
gives
us
greater
confidence
that
Nvidia
will
keep
growing
quarter
by
quarter
in
fiscal
2026
as
well.
We
now
model
41%
revenue
growth
in
data
centre
in
fiscal
2026
to
$156
billion.

For
the
most
part,
we
model
low-teens
revenue
growth
in
data
centre
each
year
after
that,
albeit
off
a
higher
base,
as
these
initial
AI
buildouts
are
greater
than
we
previously
anticipated.
Given
Nvidia’s
stellar
operating
profits,
any
increase
in
revenue
leads
to
an
outsize
boost
to
free
cash
flow
(and,
thus,
our
fair
value
estimate)
in
our
valuation
model.
Along
these
lines,
we
maintain
our
Very
High
Uncertainty
Rating
for
Nvidia,
given
the
nascent
and
fast-moving
nature
of
the
AI
market,
plus
the
high
operating
margins
associated
with
each
incremental
dollar
of
revenue,
for
better
or
worse.

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