Nvidia (NYSE: NVDA) which was anyway the best-performing S&P 500 stock in 2023 is up sharply in US premarket price action today and looks set to hit a new record high as markets give a thumbs up to its fiscal second quarter 2023 earnings. Wall Street analysts have also raised the stock’s target price after the stellar earnings report.
Nvidia reported revenues of $13.51 billion in the quarter that ended on July 30 which were up 101% YoY and a new quarterly record for the company. The revenues are also well ahead of the $11 billion that the company forecasted during the fiscal first-quarter earnings call.
Incidentally, even the Q2 revenue guidance that NVDA provided during the fiscal Q1 earnings call was over 50% higher than what analysts were expecting.
The company’s EPS came in at $2.70 which was again ahead of the $2.09 that analysts expected.
Nvidia stock rises after earnings beat estimates
Along with posting better-than-expected fiscal Q2 revenues, Nvidia guided for revenues of $16 billion in the fiscal third quarter which implies a YoY revenue growth of 170% and is well ahead of the $12.61 billion that analysts were expecting. Notably, even the most optimistic forecast called for revenues of around $14 billion, and Nvidia yet again shattered analysts’ estimates by a wide margin.
Jensen Huang, NVDA’s CEO said during his prepared remarks that “A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI.”
He added, “NVIDIA GPUs connected by our Mellanox networking and switch technologies and running our CUDA AI software stack make up the computing infrastructure of generative AI.”
Notably, Nvidia’s A100 and H100 AI chips are used in generative AI applications like ChatGPT and the demand for these chips has skyrocketed amid the AI boom as multiple companies are working on generative AI models.
AI is a major opportunity for NVDA
Huang – who was quite bullish on AI during the previous earnings call – sounded even more optimistic this time around and said during the earnings call “The world has something along the lines of about a trillion dollars worth of data centers installed, in the cloud, enterprise and otherwise.”
He stressed, “That trillion dollars of data centers is in the process of transitioning into accelerated computing and generative AI.”
Amid the strong demand for chips for generative AI, Nvidia’s Data Center revenues rose 171% YoY to $10.32 billion. Looking at the other segments, Gaming revenues rose 22% to $2.49 billion while Professional Visualization revenues rose 24%. Gaming was once the biggest revenue driver for Nvidia but things have changed drastically over the last year. While the company’s Gaming revenues fell amid falling PC sales, its data center sales have soared.
The company’s Automotive segment – which it sees as a key driver of its long-term growth – also reported a 15% YoY rise in revenues,
That said, while the other segments reported a double-digit rise in revenues which otherwise looks good on a standalone basis, the performance fades in front of the Data Center segment whose performance has been splendid.
NVDA announced a stock buyback
During the quarter, Nvidia repurchased $3.28 billion worth of its shares and said that its board has authorized another $25 billion stock buyback program. Companies usually repurchase their shares when they find them undervalued.
Nvidia on threat of China export ban
Last year, the US imposed restrictions on exports of several chips to China including Nvidia’s A100. The company however managed to circumvent the ban by selling A800 chips to China whose performance was below the limits that the Commerce Department had set.
Markets have been concerned that the Biden administration might ban exports of more high-end tech products to China.
During the earnings call, Nvidia tried to downplay the threat of a China export ban and the company’s CFO Colette Kress said, “We believe the current regulation is achieving the intended results.”
She emphasized, “Given the strength of demand for our products worldwide, we do not anticipate that additional export restrictions on our data center GPUs, if adopted, would have an immediate material impact to our financial results.”
Wall Street analysts get even more bullish on NVDA stock
Wall Street analysts, who were anyways getting bullish on NVDA stock ahead of the earnings got even more optimistic about the chip giant after its fiscal Q2 earnings release.
Stifel analyst Ruben Roy who had upgraded the stock from a hold to buy ahead of the earnings raised his target price to $600 after the earnings release and said, “we underestimated the opportunity related to the potential shift of $1 trillion of installed data center infrastructure from general purpose compute to accelerated compute architectures.”
Wells Fargo analyst Aaron Rakers also raised his target price to $600 while Goldman Sachs which had raised Nvidia’s target price last month only raised it further to $605.
Goldman Sachs analyst Toshiya Hari said, “We recognize emerging competition from the large cloud service providers (i.e., captive/internal solutions) as well as other merchant semiconductor suppliers.”
Hari added, “we expect Nvidia to maintain its status as the accelerated computing industry standard for the foreseeable future given its competitive moat and the urgency with which customers are developing/deploying increasingly complex AI models.”
Nvidia’s earnings attracted outsized attention from the markets as the stock had more than tripled in 2023 amid the AI euphoria. The company did not disappoint bulls and posted yet another quarter of impressive earnings while providing guidance that surpassed estimates by a wide margin.
Nvidia stock is up almost 7% in premarkets and looks set to strengthen its place as the biggest S&P 500 gainer in 2023.
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