NVIDIA Corporation – Market monopoly = blowout results and guidance August 28, 2023 398

PSR Recommendation: BUY Status: Upgraded
Target Price: 645.00
  • 2Q24 results exceeded expectations. 2Q24 revenue/PATMI at 54%/63% of our FY24e forecasts. 2Q24 PATMI spiked by 8-fold YoY.
  • Revenue doubled and beat guidance due to Data Centre sales nearly tripling YoY. 3Q24 guidance of a 170% YoY jump in overall revenue driven by continued strong demand for accelerated computing server products, with demand visibility extending into next year.
  • Gaming returns to positive YoY growth, while ProViz continues its YoY decline. Automotive saw QoQ decline as it faces lower demand from China OEMs.
  • We increase our FY24e revenue/PATMI by 35%/69% to account for the stronger-than-expected growth in Data Centre business. We upgrade from ACCUMULATE to a BUY rating with an increased target price of US$645.00 (prev. US$440.00), with a WACC of 6.8%, and a terminal growth rate of 4.5%.



The Positives

+ Data Centre driving strong revenue beat. Revenue doubled YoY to US$13.5bn, beating company guidance of US$11bn. The strong performance was attributed to Data Centre business surging by 171% YoY to make up 76% of total revenue, driven by accelerating demand from cloud service providers and consumer internet companies for NVDA’s HGX server platform. Data Centre growth mainly came from US customers, while China makes up 20-25% of the segment’s revenue, in line with historical trends. Gross margins also expanded by 550bps QoQ and 26.6pps YoY as a result of larger revenue contribution from the server business.


+ An even stronger 3Q24 guidance. NVDA guided for a revenue of US$16bn (+/- 2%), a potential 170% YoY jump, largely driven by Data Centre strength as customers continue to focus their investments on generative AI and accelerated computing. NVDA said this allows it to have demand visibility that extends into CY2024. As such, the company is working with suppliers to expand production capacity, and will be increasing supply over the next several quarters to fulfill the demand. Gross margins are expected to be at 71.5% (+/- 50bps), another strong 17.9pps YoY expansion.


+ Gaming returns to positive growth. Sales was up by 22% YoY, the first positive growth following 4 consecutive quarters of YoY decline. The increase was fueled by the solid end-customer demand for the GeForce RTX 40 Series GPUs, partly driven by the back-to-school season. NVDA believes the global end demand has returned to growth following the slowdown in CY2022. Furthermore, it also believes the segment has a large upgrade opportunity as only 47% of its installed base are on GPUs equipped with its RTX technology.



The Negatives

– Professional Visualisation down YoY, Automotive down QoQ. Professional Visualisation (3% of revenue) declined by 24% YoY, but contraction has moderated significantly from the -53% in 1Q24. In Automotive, revenue was up by 15% YoY to US$253mn, but was down 15% QoQ due to the lower overall demand from Chinese OEMs.

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About the author

Profile photo of Maximilian Koeswoyo

Maximilian Koeswoyo
Research Analyst

Maximilian mainly covers the US technology sector. In his strive to be a globalized citizen and get continuous exposure to the fundamentals of companies from various industries, he graduated from Singapore Management University holding a Bachelor’s degree in Business Management.

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