Nvidia Earnings: Growth Is Rocketing Through the Cloud Thanks to AI; Lifting Valuation

Nvidia Stock at a Glance

• Fair Value Estimate: $480.00
• Morningstar Rating: 2 stars
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Wide

Nvidia Earnings Update

Wide-moat Nvidia’s NVDA results and outlook were well ahead of our expectations and FactSet consensus estimates, as the company is a dominant supplier of AI accelerators to cloud computing providers. We raise our fair value estimate to $480 from $300 and lift our Uncertainty Rating to Very High. We are now much more optimistic about the rise of AI workloads and how Nvidia’s wide moat should help it cement itself as an AI chip leader.

Based on the results, guidance, and supply expansion at key partners like Taiwan Semiconductor Manufacturing TSMC, we forecast that Nvidia’s data center (DC) business, which includes AI graphics processors, will generate $41 billion in revenue in fiscal 2024, which ends in January. This compares with $15 billion a year ago and only $3 billion just four years ago.

We could be wrong, but we see little evidence that these GPU orders are up-front spending or a one-time build. Based on our estimates of capital expenditures at leading cloud providers, manufacturing expansion at TSMC, and management forecasts, we anticipate further growth in DC revenue to $60 billion in fiscal 2025, rising to $100 billion in fiscal 2028. Such growth may be unprecedented in large-cap tech, but we foresee all types of enterprises investing in AI. Similarly, all cloud providers will need to offer Nvidia’s GPUs to allow them to train AI models, while Nvidia is making the right moves to capture AI inference workloads and branch out into networking and software.

Nvidia’s near-term results support our long-term optimism. In the July quarter, total revenue was $13.5 billion, up 88% on the previous quarter and up 101% compared to the same quarter a year earlier. It beat Nvidia’s own guidance of $11 billion, which was itself eye-popping when provided to investors in May. DC revenue was $10.3 billion, up 141% sequentially and 171% year over year. We have little doubt that Nvidia will sell every GPU it can secure from TSMC in the quarters ahead.