Net profit soars six times, Nvidia announces a 1-for-10 stock split

2024-05-04

NVIDIA's Earnings Report is Impressive, Stock Price Breaks Through $1000 After Hours.

In the early morning, the AI leader NVIDIA once again stunned the market with an earnings report that exceeded expectations. The data shows that NVIDIA's total revenue and data center revenue for the quarter both set new highs, with net profit increasing by more than 620% year-on-year to $14.81 billion. The revenue guidance for the next quarter also exceeded expectations, and the company announced a 1-for-10 stock split and a significant increase in dividend payments.

NVIDIA's latest earnings report has comprehensively exceeded expectations, and the stock price has strongly broken through the $1000 mark after hours. As of press time, NVIDIA's stock price has risen by more than 6% after hours. If the upward trend continues to the opening tomorrow, NVIDIA's stock price is expected to reach a new high and officially stand above the $1000 threshold.

First Quarter Performance Fully Exceeds Expectations

In the earnings statement, NVIDIA CEO Huang Renxun exclaimed, "The next industrial revolution has begun."

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He said that countries and a large number of companies are cooperating with NVIDIA to transform traditional data centers, which are worth trillions of dollars, into accelerated computing and to build "AI factories" to produce a new product called "artificial intelligence." Huang Renxun pointed out that AI will bring significant productivity and revenue growth to almost all industries, and will benefit greatly in terms of cost-effectiveness and energy efficiency.Financial report data shows:

NVIDIA achieved a revenue of $26 billion in the first fiscal quarter, a 262% increase compared to the same period last year, while analysts had expected $24.65 billion in advance; among them, the data center revenue was $22.6 billion, a year-on-year increase of 427%;

The net profit for Q1 was $14.81 billion, a 628% increase year-on-year, with a net profit per share of $5.98, while analysts had expected $5.59 per share in advance;

The gross margin, which the market had been quite concerned about, also continued to rise. The Q1 gross margin reached 78.4%, up from 76% in the previous quarter and 64.6% in the same period last year.

NVIDIA also expects the revenue for the second fiscal quarter to be $28 billion (±2%), while analysts had expected $26.8 billion in advance; the adjusted gross margin is expected to be 75.5% (±0.5%).

 

It is not difficult to see from the data that NVIDIA's core growth is entirely driven by the data center business. In the revenue of $26 billion, the data center alone accounts for $22.6 billion. From the management's statement, this proportion is expected to further expand.

In addition to the data center, NVIDIA's gaming business achieved a revenue of $2.6 billion in Q1, a 18% increase year-on-year; while the impact of automotive chips and graphics workstation chips is relatively limited, with sales of $427 million and $329 million respectively in the first quarter.

 

For this reason, investors are still most concerned about the development of the data center business.NVIDIA CFO Colette Kress explained that the growth in the Q1 data center business came from an increase in shipments of Hopper architecture GPUs (such as the H100). Kress highlighted in a conference call that one of the key points of this quarter was Meta's announcement of the open-source large model Lama 3, which utilized 24,000 H100 GPUs. Kress introduced that large cloud service providers account for about 45% of data center revenue.

Stock Split, Dividends Doubled

With the release of the financial report, NVIDIA also announced a stock split plan, expected to be a 1-for-10 split, effective after the close on June 7th. The stock split is undoubtedly a boon for ordinary investors under the high stock price. In addition, NVIDIA increased its quarterly cash dividend from $0.04 per share to $0.10 per share, a 150% increase. The increased dividend, equivalent to $0.01 per share after the split, will be paid out on June 28th.

In the past year and a half, NVIDIA's stock price has risen from over a hundred dollars to nearly a thousand dollars. The stock split also facilitates investors to more easily buy NVIDIA stocks, which is usually seen as a positive for the US stock market.

NVIDIA also announced an increase in the cash dividend per common share from $0.04 to $0.10 (equivalent to $0.01 per share after the split). During the Q1 reporting period, NVIDIA repurchased a total of $7.7 billion worth of shares and paid $98 million in dividends.

It is reported that before the release of the performance, traders have been prepared to face the large fluctuations in NVIDIA's stock price and the market. The sharp rise in the stock price has made it one of the most watched stocks on Wall Street. Since the beginning of 2023, its market value has increased by more than six times, reaching 2.3 trillion US dollars, surpassing Google's parent company Alphabet and Amazon, becoming the third largest market value listed company in the United States.

NVIDIA has been rapidly taking action to utilize the surge in artificial intelligence demand and take the lead over competitors and customers who are developing their own artificial intelligence chips. The company launched the Blackwell chip in March, which is said to have twice the performance of the current generation of chips used to train AI models and provide five times the "inference" performance (i.e., the speed at which such models respond to queries). Just a year ago, the company released the previous generation of GPU chip architecture, Hopper. Blackwell is expected to start shipping later this year.

Analysts have questioned whether the transition to new product lines will affect NVIDIA's year-over-year growth in the first few quarters as demand appears temporarily vacant. For example, the rapid pace of its chip releases has led Amazon to change its plans to order chips based on the previous generation of Nvidia architecture and replace them with the Blackwell series.

However, Huang Renxun assured investors that the demand for Hopper and Blackwell series products is "far exceeding supply," and this situation is likely to continue "until next year".NVIDIA's Earnings Release: What Impact Will It Have on the Capital Market?

On one hand, NVIDIA's performance meets or even exceeds expectations, indicating that the demand for AI computing power is indeed continuing the strong trend seen previously. On the other hand, the GB200 — touted as the most powerful computing chip in history — or the significant highlight of the performance, if the mass production time of GB200 is confirmed, then in addition to such a high value of computing power chips, the demand and value of the higher performance servers, switches, optical modules and other equipment it needs to match will also be considerable. The combination of the two is expected to lead to a rise in both quantity and price in the computing power industry chain, which will be reflected in the capital market, and the sentiment of the domestic computing power segment related to NVIDIA's industry chain is expected to be ignited again.

Some securities institutions have said: With NVIDIA's financial report exceeding expectations, the market's recognition of computing power will be further enhanced. As NVIDIA's B series products are upgraded, the market has started to look forward to the second half of the year and even 2025, and the valuation side is expected to gradually switch to 2025. At the current time, the core targets of computing power are centered on Zhongji Xuchang, New Easy Prosperity, Tianfu Communication, Industrial Fulian, and Hu Di Shares. And it is optimistic about the core target valuation switch, opening up the imagination space for other computing power varieties.

In terms of related ETFs, the top ten holdings of the 5G Communication ETF are Zhongji Xuchang, Luxshare Precision, Industrial Fulian, ZTE Communication, New Easy Prosperity, Zhejiang Innovation, Unisplendour Shares, Hu Di Shares, Tianfu Communication, and Sanan Optoelectronics, accounting for a total of 53.89%.

CITIC Construction Investment Securities pointed out that the three major domestic operators have all started to purchase training-type AI servers, and it is expected that in the future, they will also bid for inference-type AI servers. It is recommended to continue to pay attention to investment opportunities in the AI sector, including optical communication and domestic computing power sectors, and gradually expand to large models and application fields.

Guosheng Securities pointed out that the overall development speed of AI is still faster than the supply speed of computing power, and the market pattern will continue to maintain a state of supply shortage in the short and medium term; China International Capital Corporation said that the positive "computing power upgrade and cost reduction + demand continues to grow" flywheel effect, the demand for AI hardware is still in a high prosperity stage at present.

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