Nvidia (NVDA) has been making waves in the stock market, fueled by its advancements in artificial intelligence (AI). The company's fiscal 2024 first-quarter results, released on May 24, surpassed Wall Street's expectations and led to a staggering 25% surge in its stock price the following day.
With year-to-date gains reaching an impressive 166%, investors are now pondering whether it's too late to buy this high-flying semiconductor stock. Before we delve into that question, let's explore why Nvidia received such a resounding market response to its latest quarterly report.
Nvidia's Q1 2024 revenue of $7.2 billion exceeded the company's initial guidance of $6.5 billion by a significant margin. Additionally, its adjusted earnings per share for the quarter jumped 28% compared to the previous year. This remarkable growth can be attributed to Nvidia's strong pricing power in the data center GPU (graphics processing unit) market, driven by the increasing demand for AI infrastructure in training and inferencing.
CSPs (cloud service providers) worldwide are eagerly adopting Nvidia's flagship Hopper and Ampere architecture GPUs to meet the rising interest in AI applications from both enterprises and consumers. Major CSPs, including Microsoft Azure, Google Cloud, and Oracle Cloud Infrastructure, have already announced the availability of Nvidia's H100 on their platforms. This heightened demand for AI chips has prompted Nvidia to increase its supply through additional orders at its foundry partner.
Nvidia's data center business experienced substantial growth in the last quarter, with revenue increasing by 14% year over year to a record $4.28 billion. The company's guidance for the current quarter is even more optimistic, projecting revenue of $11 billion, surpassing analysts' expectations by at least 50%. Furthermore, Nvidia's non-GAAP gross margin is expected to reach 70%, a significant jump from the previous year's 46%. These positive indicators suggest that Nvidia's earnings are poised to experience significant growth in the current quarter.
Considering Nvidia's exceptional guidance and the immense potential of generative AI, which is just beginning to gain traction, there is ample opportunity for the stock to deliver further upside. According to Polaris Market Research, the generative AI market could witness annual growth of 34% over the next decade, eventually reaching $200 billion in annual revenue by 2032. Nvidia's GPUs are expected to play a vital role in driving the proliferation of generative AI, further boosting demand for the company's products.
The expanding market for AI workloads is projected to grow from under $17 billion annually in 2022 to over $227 billion annually by 2032. With Nvidia's strong position in the AI chip market, there is considerable room for growth in its data center business. Analysts have adjusted their growth expectations accordingly.
Despite Nvidia's current stock price trading at a high multiple of 202 times trailing earnings, the company's strong guidance and long-term potential justify this valuation. Its forward earnings ratio of 53 indicates a significant jump in bottom-line profitability, aligning with the anticipated margin gains. While the stock may seem expensive, the prospects for benefiting from the adoption of AI make it an attractive investment opportunity.
In conclusion, considering Nvidia's recent performance, impressive guidance, and the burgeoning demand for AI technologies, it appears that investing in Nvidia stock still offers potential upside. However, investors should be mindful of the premium valuation and the long-term nature of the investment.
