Nvidia Posts Predictably-Outstanding Results With Strong Forward Guidance

Nvidia remains the king of AI processors and its stock remains fairly valued, but our analysts still attach a Very High Uncertainty Rating to the company

Brian Colello, CPA 23 November, 2023 | 9:27AM
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Nvidia logo on building.

Wide-moat Nvidia [NVDA] reported predictably outstanding results for the October quarter that were ahead of guidance, while the company's fiscal fourth-quarter outlook was also ahead of our prior expectations. Nvidia is clearly the dominant provider of graphics processing units (GPUs) deployed in data centers, and we don't foresee the company losing its supremacy any time soon.

We maintain our $480 (£383.72) fair value estimate and view shares as fairly valued. We also maintain our Very High Morningstar Uncertainty Rating, as the timing and magnitude of future artificial intelligence GPU growth remains unclear to us, especially given recent US restrictions on chip sales into China.

That said, Nvidia’s earnings report gives us a small confidence boost that the firm can reach our projection of $100 billion of data center revenue in fiscal 2028, as compared with just $15 billion last fiscal year and our estimate of $46 billion this year.

What We Thought of Nvidia's Earnings

Revenue in the third quarter of this year quarter was $18.1 billion, up 34% sequentially, up 206% year over year, and above guidance and our estimate of US$16.0 billion. Data center revenue, driven by insatiable AI GPU demand, remains the only story that matters, in our view, with revenue of $14.5 billion up 41% sequentially and 279% year over year.

AI GPU demand is coming from all customer types – cloud, consumer internet firms, and enterprises. Nvidia's hefty pricing power on its GPUs remains intact, as adjusted gross margin rose to 75% and adjusted operating margin came in at 64%, above guidance of 72.5% and 53%, respectively.

Nvidia expects revenue of US$20 billion in the January quarter, which would be up 10% sequentially and 230% year over year. Within revenue, we estimate that data center revenue will be $16.8 billion, up a whopping 366% year over year. A significant decline in revenue from China will be offset by robust growth elsewhere in the world. Adjusted gross margin is forecast to be 75.5%, and we model an exceptional 65% adjusted operating margin next quarter.

Nvidia Key Metrics

• Fair Value Estimate: $480;
• Morningstar Rating: 3 stars;
• Morningstar Economic Moat Rating: Wide;
• Morningstar Uncertainty Rating: Very High.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
NVIDIA Corp123.54 USD4.76Rating

About Author

Brian Colello, CPA  is a senior stock analyst with Morningstar.

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