For NVIDIA Corp (NVDA, Financial), the primary driver of anticipated growth is the data center sector, fueled by increasing demand for generative artificial intelligence and expansive language models. However, there are concerns around AI stocks amid a recent drop.
Outlook and expectations
Looking ahead to the second quarter of fiscal 2024, the street expects total revenue of approximately $11 billion. The growth trajectory is chiefly attributed to the data center sector, driven by escalating demand tied to generative AI and expansive language models. The heightened demand has bolstered the company's visibility in the data center space for several upcoming quarters, prompting preparations for increased supply during the latter half of the year.
The company's projected GAAP and non-GAAP gross margins stand at 68.6% and 70%, respectively, subject to a potential fluctuation of up to 50 basis points. Anticipated GAAP and non-GAAP operating expenses are roughly $2.71 billion and $1.9 billion, respectively.
Financial Predictions
Regarding GAAP and non-GAAP other income and expenses, an approximate income of $90 million is predicted, excluding gains and losses from non-affiliated investments. Capital expenditures are estimated to range from $300 million to $350 million. Moving on to the forthcoming earnings announcement on August 23, 2023, the normalized EPS estimate is $2.07, while the GAAP EPS estimate is $1.73.
Significant Developments
Other significant developments may push NVIDIA Corp (NVDA, Financial)'s performance apart from the expected data center boom. For instance, a moderation in sequential growth has been observed due to some Chinese NEV customers adjusting production schedules in response to slower-than-expected demand growth. The trend is expected to persist throughout the remainder of the calendar year.
The company has also expanded its partnership with BYD (OTCMKTS:BYDDY), a leading NEV manufacturer, securing a new design win to extend the utilization of DRIVE Orin technology to the upcoming high-volume Dynasty and Ocean vehicle series, with production set to commence in 2024.
Riding high on AI dominance, billionaire confidence and expanding frontiers
Despite the fact that there have been no company-specific developments that should have negatively influenced its ascent, the stock has dropped in the past month, and investors appear to be affected by Morgan Stanley's assumption that the high-flying run in AI companies is coming to an end and the "bubble" is set to burst.
On the contrary, NVIDIA Corp (NVDA, Financial)'s strengths, including its dominance in AI, robust financial performance, investor confidence, leadership in edge computing, and other market expansion opportunities, suggest a compelling robust outlook for the firm. Specifically, the company's growth trajectory is supported by:
Key Strengths
1. Dominance in Artificial Intelligence: NVIDIA Corp (NVDA, Financial) has been at the forefront of AI innovation, providing cutting-edge solutions for data centers, autonomous vehicles, healthcare, and more. Its GPUs have become the preferred hardware for AI training and inference due to their parallel processing capabilities. Also, the company's CUDA platform and software libraries further bolster its position, making it a go-to choice for AI researchers and developers.
2. Strong Financial Performance: The company's financials have been consistently impressive, showcasing its ability to convert technological leadership into substantial revenue growth. NVIDIA Corp (NVDA, Financial)'s Q2 2023 earnings demonstrated its ability to maintain strong performance across various segments, with revenue of $7.76 billion, an increase of 68% year-over-year.
3. Billionaire Investor Confidence: Renowned billionaire investor David Tepper (Trades, Portfolio), known for his astute market insights, has recently increased his stake in NVIDIA Corp (NVDA, Financial). This move suggests a strong vote of confidence in the company's long-term growth potential.
4. Expanding Market Opportunities: NVIDIA Corp (NVDA, Financial)'s market opportunities continue to expand as AI applications permeate various industries. From healthcare and finance to automotive and entertainment, AI is becoming integral to enhancing efficiency and capabilities. NVIDIA Corp (NVDA) will benefit from this broader trend as the demand for AI-driven solutions increases.
5. Leadership in Edge Computing: The rise of edge computing, where data processing occurs closer to the data source than in centralized data centers, is gaining momentum. NVIDIA Corp (NVDA, Financial)'s GPUs and AI technologies are well-suited for edge computing applications, enabling real-time processing and decision-making in scenarios like autonomous vehicles and Internet of Things (IoT) devices.
6. Synergies with Metaverse and Gaming: The company's gaming division has long been a significant revenue driver, and its technologies are also aligning with the growing concept of the metaverse. As virtual and augmented reality experiences gain traction, NVIDIA Corp (NVDA, Financial)'s graphics prowess and AI capabilities could be crucial in shaping this emerging digital landscape.
7. Ongoing Innovations: NVIDIA Corp (NVDA, Financial)'s commitment to innovation is evident in its consistently releasing new and improved products. The company's dedication to pushing the boundaries of technology ensures that it remains relevant and competitive in a rapidly evolving tech landscape.
8. Strategic Acquisitions: NVIDIA Corp (NVDA, Financial) has a history of strategic acquisitions that have bolstered its capabilities and expanded its portfolio. These acquisitions enable the company to tap into new markets and enhance its offerings, further solidifying its position as a technology leader.
A "wonderful" company at a "wonderful" price
NVIDIA Corp (NVDA, Financial)'s current price of $432.99 is significantly higher than its intrinsic value of $312.97, suggesting an overvaluation. In addition, the high P/E ratio of 225.52x further supports this notion, indicating that investors are willing to pay a premium for each dollar of earnings the company generates due to the growth and AI hype.
Similarly, the P/S ratio of 41.76x and EV/EBITDA ratio of 165.59x also indicate that NVIDIA Corp (NVDA, Financial) may be overvalued, significantly higher than its 5-year and 10-year averages, as well as trading at a premium to its industry peers.
On the other hand, the PEG ratio of 11.62x suggests that NVIDIA Corp (NVDA, Financial)'s future earnings growth may not be keeping pace with its current valuation.
Finally, the company will disclose its fiscal 2024 second-quarter results the following week, and I wouldn't be surprised if NVIDIA Corp (NVDA, Financial) gets another valuation boost in the following days if earnings results exceed Wall Street's expectations.
Takeaway
In conclusion, NVIDIA Corp (NVDA, Financial)'s prowess in artificial intelligence, strong financial performance, endorsement from prominent investors like David Tepper (Trades, Portfolio), expanding market opportunities, edge computing leadership, and ongoing innovations collectively paint a bullish picture for the company's future prospects. As technology continues to reshape industries and drive innovation, NVIDIA Corp (NVDA) appears well-positioned to remain at the forefront of these advancements.
