The Bull Case For Nvidia

There has been an explosion in demand for connected devices. That, along with improvements in automation and a dramatic increase in Artificial Intelligence applications, put the spotlight on businesses that can produce the exceptionally powerful chips that make new technologies run faster and more effectively. Enter Nvidia, the company that revolutionized gaming with the development of advanced graphics processing units (GPUs). 

Nvidia’s success in creating industry-leading Artificial Intelligence technology, computer graphics, and high-performance computing solutions has made it one of the most respected companies in the digital world. That’s good news for shareholders – and even better after reviewing its most recent earnings report. 

Nvidia has been growing rapidly in recent years as B2B and B2C consumers continue their transition from CPU (central processing unit) technology to GPU (graphics processing unit) technology. For the fiscal quarter ending May 2, 2021, Nvidia’s revenues totaled $5.66 billion, which represents year-over-year growth of 84 percent. 

Nvidia’s fiscal first-quarter 2022 earnings call, held on May 26, 2021, for the period ending May 2, 2021, demonstrated that the bull case for Nvidia is strong. These are the highlights – along with insight into analysts’ predictions for Nvidia’s future. 

Gaming Drives Nvidia Revenue Acceleration 

Nvidia (NVDA) announced that its Data Center, Gaming, and Professional Visualization units realized record-breaking revenues thanks to updated product lineups that are widely considered the best in the business.

Specifically, the Gaming Division saw total revenue of $2.8 billion, which is an 11 percent increase from the previous quarter and a 106 percent increase year over year.

Nvidia leadership noted that this is the third consecutive quarter that delivered an acceleration in year-over-year revenue growth in Gaming. Desktop and laptop GPU sales broke the company’s previous sales records, and it appears the demand trajectory will continue to trend upward. 

That prediction is based on the intense interest in Nvidia’s new, more powerful GeForce gaming laptops. Specialized versions launched in May, and more affordable mainstream versions will be out in August – a high-volume sales period due to students going back to school. 

The new technology makes it possible for game developers to accelerate frame rates more efficiently. In addition, the recently introduced Nvidia Reflex technology decreases system latency – a major advantage for eSports gamers. 

This same technology is being used for cryptocurrency minding processors (CMPs), which is a rapidly expanding market for Nvidia.

While the company hasn’t fully separated CMP demand from traditional gaming demand, new products are geared exclusively to cryptocurrency mining – another growing market. Nvidia estimated total CMP-related revenue of $155 million for fiscal first quarter 2022 – a figure that is expected to grow to $400 million in fiscal second quarter 2022. 

Record-Breaking Revenues For Professional Visualization Unit 

Architects, engineers, and scientists are just a few of the professions that rely on state-of-the-art GPUs to get the job done. That makes Nvidia technology particularly appealing – it offers the most powerful graphics technology available for advanced visualization applications. 

Nvidia’s proprietary Artificial Intelligence powers GANverse3D, a new option for transforming 2D images into 3D object models. In addition, Nvidia has released a new collaboration tool, NVIDIA Omniverse Enterprise software, which allows professionals to collaborate on 3D design in real-time. 

Those advances made it possible for Nvidia’s Professional Visualization Division to generate $372 million in revenue for the quarter – an all-time high. The figure represents year-over-year growth of 21 percent. 

Data Center Division Delivers Revenue Growth 

Nvidia’s Data Center Unit saw total revenue at $2.05 billion for the quarter, which represents 8 percent growth from the previous quarter and 79 percent growth year-over-year. Much of this stems from expansion in Nvidia’s offerings – for example, NVIDIA Grace. 

NVIDIA Grace is an ARM-based data center CPU intended for “giant-scale” AI. It offers ten times the performance of the fastest servers available today, and it has been selected to power the Swiss National Supercomputing Centre’s AI-capable supercomputer. This supercomputer has the rare distinction of being the most powerful AI-capable supercomputer in the world. 

In addition to the partnership with the Swiss National Supercomputing Centre, Nvidia is working with Amazon Web Services (AWS) to integrate Nvidia GPU inference into AWS GPU-accelerated games. It is also entering the pharmaceutical industry through a partnership with Schrödinger. Nvidia’s Clara Discovery is AI software that permits faster drug discovery workflow.

NVDA Projections For Fiscal 2nd Quarter 2022

Investors were wowed by first-quarter results, but some wonder if Nvidia can sustain that momentum into the next quarter. Nvidia’s management say yes.

The company indicated that substantial year-over-year revenue growth is expected again for fiscal second quarter 2022, driven primarily by the Gaming and Data Center units.

Nvidia’s fiscal second quarter guidance calls for revenues within two percent of $6.3 billion.

Gross margins are projected within 50 basis points of 64.6 percent (GAAP) and 66.5 percent (non-GAAP), and operating expenses are expected to come in at $17.6 billion (GAAP) and $1.26 billion (non-GAAP). 

The Bull Case For Nvidia 

The most recent financials illustrate the short-term bull case for Nvidia, but they don’t provide a complete picture of the company’s longer-term potential.

Nvidia is a critical partner for major cloud computing companies like Amazon Web Services, Alphabet’s Google Cloud, and Microsoft’s Azure Cloud because its processors are the fastest in the industry. That’s a must-have as cloud computing begins to rely more heavily on Artificial Intelligence. 

That rapid processing is critical to another emerging industry: autonomous or self-driving vehicles. Nvidia is the go-to provider of specialized technology required to make autonomous vehicles a reality. 

Today, Nvidia’s Automotive Unit isn’t a large contributor to bottom-line results. In fact, automotive revenues make up just four percent of the company’s total. However, as self-driving vehicles inch closer to completion, Nvidia is well-positioned to be part of a new era in transportation. More than 370 of the companies involved in this field are relying on Nvidia’s open autonomous vehicle computing platform for their success. 

Nvidia technology is deeply integrated into the digital tools that will drive the industries of the future. With that in mind, there is consensus among analysts that Nvidia’s value will continue to rise. The most optimistic of the group suggests it is possible the company could surpass a $1 trillion market cap by 2025.

Whether it reaches $1 trillion or not, it is clear that Nvidia is likely to grow in the coming years. That means strong returns for shareholders along the way. In other words, the bull case for Nvidia is compelling, making Nvidia stock a buy. 

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