Nvidia Earnings Report Preview: Feb 21, 2024

Topic: Financials
Publication Type: Articles
Nvidia Earnings Report Preview: Feb 21, 2024

The upcoming earnings report from Nvidia, a leading chipmaker, is anticipated to serve as a crucial moment for both the company and the fervor surrounding artificial intelligence (AI) driving recent stock market gains.

Nvidia's stock has surged by over 46% since the beginning of 2024, buoyed by optimism surrounding the potential of AI. This surge has resulted in the market capitalization increasing by $570 billion, surpassing Intel's market value by more than three times. Nvidia's shares, recognized as the premier choice in the AI sector, experienced an impressive surge of nearly 240% throughout 2023. (Source: Yahoo Finance)

Key Takeaways

  • Nvidia is set to announce fourth quarter 2024 earnings on 21st February.
  • Investors are anticipated to focus on the performance of Nvidia's data centre segment, which significantly contributed to the company's earnings in the previous quarter.
  • Moreover, investors are also anticipating growth guidance from the company and for its data centre segment going forward.
  • Nvidia may also offer further insights into its reported intentions to establish a new custom chip unit.

Nvidia's gains have contributed to over a quarter of the S&P 500's growth this year. The S&P 500 has risen nearly 5% year-to-date, following a 24% increase in 2023, driven partly by optimism surrounding AI advancements.

Currently ranked as the third most valuable company on Wall Street, trailing only behind Apple and Microsoft, Nvidia has emerged as a leading indicator for the artificial intelligence sector. This status has also elevated its significance as a bellwether for AI-focused investments. Other stocks in the AI space have also seen substantial growth this year, such as Super Micro Computer Inc., which has surged by 182% year-to-date.

Data Centre Segment

In November, Nvidia reported third-quarter earnings for 2024, driven by strong growth in the chipmaker's data centre business, which provides cloud and AI services. Revenue from the data centre segment reached a record high of $18.12 billion in the third quarter, soaring by 206% YoY. moreover, Nvidia's data centre division revenue skyrocketed by 279% YoY and stood at $14.5 billion.

Nvidia's shares have recently surged to a record high amid reports of the chipmaker's intention to launch a new business unit specializing in custom chips.

During Nvidia’s earnings call, investors anticipate Nvidia to elaborate on this new business unit, potentially providing insights into how it aims to capitalize on the expanding custom chip market. This move could bolster Nvidia's standing as the leading chip company globally, particularly amidst the AI boom.

The primary factor that could possibly dampen Nvidia's earnings potential is supply constraints. Investors are likely keen on any insights regarding the extent and speed at which the company's manufacturing partners are scaling up to meet the demand for its AI graphics processing units.

Artificial Intelligence (AI)

Furthermore, Investors will closely monitor Nvidia's guidance to assess the duration of the spending surge in data centre-based artificial intelligence. Cloud service providers have been actively purchasing graphics processing units (GPUs) to support generative AI applications.

There are also certain questions within the AI market for Nvidia and its peers which include the impact of US restriction on China on Nvidia's revenues. Also, the progress related to the new products, are they complaint? Has the restrictions made any impact on the growth trajectory of the company?

Investors also have questions related to the sovereign governments buying Nvidia GPUs to build supercomputers, has it contributed to revenue growth for the company?

What is the size of the AI accelerator market? The AI accelerator market is expanding rapidly, with AMD revising its forecast for the total addressable market to $400 billion by 2027. While this includes various chip types, it implies significant growth in GPUs, where Nvidia remains dominant in the AI sector.

What capital expenditure is Nvidia seeing in the data centre? Mega-cap tech companies have lifted their spending plans for AI in 2024, and cloud leaders might buy many more GPUs than what the market anticipates over the next few years.

Reuters recently reported that Nvidia is building a custom chip design unit that might help build specialized AI chips for others. Investors might be interested in any insight around this initiative, and the opportunities it might open for Nvidia.

Outlook Expectations

Other chip companies, such as Arm Holdings (ARM), Micron Technology (MU), Advanced Micro Devices (AMD), and Intel (INTC), have also reported earnings that surpassed expectations, fueled by the growing demand for AI-related technologies. Nvidia’s earnings report is expected to

Nvidia is set to announce its quarterly earnings results on February 21 next Wednesday after the market close. Analysts on Wall Street anticipate earnings of $4.56 per share and a quarterly revenue increase to $20.378 billion, compared to 88 cents per share on revenue of $6.05 billion in Nvidia’s Q4 2023 earnings report. These estimates are based on data from 33 analysts, as per LSEG data. (Source: Reuters).

At its current forward price-to-earnings estimate valuation of just 24 times, Nvidia's stock might be considered a compelling addition to any growth portfolio for 2024, especially considering the company's robust fundamentals.  However, to sustain its upward trajectory, the company might have to maintain its focus on highlighting its growth prospects not only for the upcoming Nvidia earnings report for the quarter but also for the long term. Continued emphasis on future growth potential will likely be crucial for investors' confidence and the stock's ongoing momentum. (Source: Nasdaq)

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