Since its 1Q23 earnings, $NVDA is up 27.5% and its market cap has grown by more than $184B! Sound big?
Yes, that's larger than Intel:
If this trend continues, Nvidia could become the newly minted member of the prestigious trillion-dollar market cap companies which include Apple, Microsoft, Alphabet, and Amazon!
š«§ or š?
Iād say, donāt jump onto this hot stock just yet.
Letās explore Nvidiaās latest run:
š„³Why did Nvidiaās price pop?
Nvidia did well in its latest earnings;
ā beat EPS expectations by a good 18.8%
ā beat Revenue expectations by 10.3%
NVDA even added cherry to the top with the announcement of a blowout guidance:
šÆ2Q24 forecast revenue ~$11B (Wall Street anticipated $7.2B)
šÆ2Q24 forecast EPS of $1.97 (Wall Street anticipated $1.06)
The projected total revenue of $11 billion represents a staggering 64% increase compared to the same period last year and a substantial 53% growth compared to the latest quarter. This exceptional projection is what triggered Nvidia's significant 25% gain. It clearly indicates that the AI craze has resulted in tangible and substantial growth for Nvidia.
Finbite Insights on Nvidia
No wonder Nvidiaās stock price popped:
šBut wait, it isnāt that impressive under the hood
Letās take a closer look at Nvidiaās 1Q24 earnings:
Due to the increase demand for cloud processing and generative AI applications, Nvidia saw strong growth in its Data Center segment.
While its Auto segment grew significantly as well, Gaming and other segments continue to hold back Nvidiaās overall growth.
Although Nvidia did beat earning expectations, its total revenue had declined 13% year-on-year.
So why the bull run?!
š¤The AI Boom
Since the launch of ChatGPT, artificial intelligence (AI) has become the key focus of tech companies:
What is Nvidiaās role in the AI gold rush?
If AI is the gold, Nvidia is selling the shovels to the gold diggers.
Finbite Insights on why you shouldnāt short Nvidia
Neural network model training is a key process in AI and it is highly resource intensive; multiple computations have to be processed at the same time.
Graphic Processing Units (GPUs) have become the foundation of AI, as it allows for such computations to be done.
Andā¦
šNvidiaās GPUs are currently the Best In Class
Nvidiaās A100 chips are the best in class currently.
In fact, Nvidiaās hardware powers most if not all of deep learning artificial intelligence:
š«§The AI Hype
AI is a really powerful technology that can change how we do things like work, make art, and enjoy music and videos. We can already see it being used in these areas.
That said, it's important to know that there's a lot of excitement and talk about AI right now. Many companies are jumping on the AI trend because they think it's the next big thing.
This has caused a big demand for Nvidia's GPUs, which are important for AI. While Nvidia will continue to benefit from the ongoing AI gold rushā¦
However, how many of the 100M ChatGPT users are still active users?
How long will the AI hype last?
No one knows.
The huge demand for Nvidia's GPUs might not last forever.
šøNvidia is vastly overpriced
I know I will get flaked for saying this.
Nvidia is currently the sixth biggest company in the world! That means it's even bigger than famous companies like Berkshire Hathaway, Meta Platforms, Tesla, TSMC, and others.
But when you look at how much money it actually makes, Nvidiaās revenue is ranked 432nd in the world.
This means that compared to other companies, Nvidia's Price-to-Sales ratio is higher. (At the point of writing, Nvidiaās PS ratio stands at 37.56.) That's just a fancy way of saying that the price of Nvidia's stock is higher compared to how much money the company makes.
In terms of earnings, Nvidia is ranked 355th.
Those are some pretty huge discrepancy. And I would wager to say that most of it is due to the AI hype.
Now, Iām not trying to throw shade on Nvidia. It is a great business. But even great businesses are not spared in recessions or negative macro economy events.
If you donāt have a position in Nvidia now, it would be prudent to wait for its valuation to normalize instead of jumping in.
Great Write-up!