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NVIDIA (NVDA) - Earnings Review

Strong Beat & Raise Showing Thesis In-tact

MR Wahdy

Aug 24, 2023

NVIDIA continues to power ahead on its “platform shift” thesis. Management sees a change in data center mix as the biggest driver for NVDAs growth, driven by the adoption of generative AI workflows and accelerated computing.

Q2 2024 Result

Q2 revenues were $13.5b vs. consensus estimates of $11.1b (guidance was for $11b +/- 2%). Operating margins came in at 57.6% vs. 52.3% consensus, as product mix shifted to higher ASPs given the surge in demand for chipsets.
Data center demand continues to outpace supply, though management expects supply to increase each quarter through next year. Management guided $16b in Q3 sales, a whopping 27% above consensus for Q3. To put this in perspective, the street did not expect NVDA to cross $16b in sales until Q2 2025.
Gaming revenues, the traditional bread and butter for NVDA, also beat consensus estimates, supporting a broader improvement across their end markets. Autos came in weaker, as expected given the macro climate.

Valuation

Price Target

We estimate that NVDA can grow sales sequentially over 20% through the next few quarters, given the demand-supply gap, which drives our variance to consensus. Our price target for NVDA is ~$700 based upon 24x NTM EBITDA.
CSP spend and data center capex will be important to watch, though we are more skeptical of peer read-throughs given the difference in product mix and end markets. For example, while NVDA is a major customer to TSMC, the bulk of the foundries output comes from smartphone end markets, which NVDA has little to no exposure on.
We are bullish on the stock and see the opportunity for sequential beat and raises given the streets hesitency to price in the secular tailwinds boosting NVDAs sales.
Risks to our outlook include: (1) a worsening macroeconomic condition, (2) a material slowdown in CSP spend, (3) regulatory or international trade issues, and (4) major supply disruptions.

Disclaimer: The information provided herein is for commentary purposes only and does not constitute financial or investment advice. Wahdy Capital and/or its affiliates may hold positions in the securities described. Always consult with a professional before making any financial decisions.