Nvidia (NASDAQ:NVDA) Delivers Impressive Q3, Provides Optimistic Guidance For Next Quarter

Leading designer of graphics chips Nvidia (NASDAQ:)
announced better-than-expected results in Q3 FY2024, with revenue up 206% year on year to $18.12 billion. On top of that, next quarter’s revenue guidance ($20 billion at the midpoint) was surprisingly good and 12.2% above what analysts were expecting. Turning to EPS, Nvidia made a non-GAAP profit of $4.02 per share, improving from its profit of $0.58 per share in the same quarter last year.

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Nvidia (NVDA) Q3 FY2024 Highlights:

• Revenue: $18.12 billion vs analyst estimates of $16.11 billion (12.5% beat)
• EPS (non-GAAP): $4.02 vs analyst estimates of $3.39 (18.7% beat)
• Revenue Guidance for Q4 2024 is $20 billion at the midpoint, above analyst estimates of $17.82 billion
• Free Cash Flow of $7.04 billion, up 16.4% from the previous quarter
• Inventory Days Outstanding: 92, down from 97 in the previous quarter
• Gross Margin (GAAP): 74%, up from 53.6% in the same quarter last year

“Our strong growth reflects the broad industry platform transition from general-purpose to accelerated computing and generative AI,” said Jensen Huang, founder and CEO of NVIDIA.

Founded in 1993 by Jensen Huang and two former Sun Microsystems engineers, Nvidia (NASDAQ:NVDA) is a leading fabless designer of chips used in gaming, PCs, data centers, automotive, and a variety of end markets.

Processors and Graphics ChipsThe biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales GrowthNvidia’s revenue growth over the last three years has been exceptional, averaging 51.8% annually. As you can see below, this quarter was especially strong, with revenue growing from $5.93 billion in the same quarter last year to $18.12 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Nvidia had a fantastic quarter as its 206% year-on-year revenue growth beat analysts’ estimates by 12.5%. We believe the company is still in the early days of an upcycle, as this was just the second consecutive quarter of growth and a typical upcycle tends to last 8-10 quarters.

Nvidia’s management team believes its revenue growth will accelerate, guiding to 231% year-on-year growth next quarter. Wall Street expects the company to grow its revenue by 104% over the next 12 months.

Product Demand & Outstanding InventoryDays Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand.
In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power.
Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Nvidia’s DIO came in at 92, which is 16 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

Key Takeaways from Nvidia’s Q3 Results
With a market capitalization of $1.25 trillion, a $18.28 billion cash balance, and positive free cash flow over the last 12 months, we’re confident that Nvidia has the resources needed to pursue a high-growth business strategy.

We were impressed by Nvidia’s strong gross margin improvement this quarter. We were also excited its revenue and EPS topped Wall Street’s estimates, driven by significantly better-than-expected performance in its data center division. Its gaming and professional visualization segments also beat analysts’ projections but to a lesser extent. Looking ahead, its revenue guidance for next quarter beat expectations (again). We think this was a great quarter and shows the company is firing on all cylinders. Much optimism was already priced in, however, and the stock is flat after reporting. It currently trades at $495.7 per share.

The author has no position in any of the stocks mentioned in this report.