Nvidia FQ4 24 – The Rollercoaster

A great ride but there is no way to get off.

• Another set of excellent results confirms that for as long as the AI rollercoaster continues, Nvidia is the occupant in the train and will continue to experience a wild ride.
• FQ4 24 revenues / EPS were $22.1bn / $4.93 nicely ahead of forecasts of $20.4bn / $4.59 and there is the promise of more to come as there is no end in sight to the generative AI hype.
• Data centre was the star of the show posting revenues of $18.4bn up 27% QoQ and a massive 409% YoY as demand continues to far exceed supply.
• There are signs that the market is beginning to shift from training to inference as Nvidia estimates that 40% of its revenues in the last year are for inference rather than training.
• Furthermore, over half of Q4 24 revenue was from large cloud providers again underlining just how dominant they are, and how spectacularly they have failed to come up with in-house alternatives to Nvidia.
• This is on full display in Nvidia’s profitability numbers where gross margins rose to 76% (GAAP) and GAAP EPS was up 765% YoY which goes a long way to supporting Nvidia’s valuation.
• It also highlights that the ever-increasing number of competitors both in the merchant market and in-house remain unable to make a dent in Nvidia’s proposition.
• This is a result of its CUDA development platform which is far superior to anyone else’s and has become an industry standard and its breakneck product cadence which ensures it always has the most advanced products in the market.
• The good news was not just limited to data centre as both automotive and gaming beat expectations demonstrating a company that is firing on all cylinders.
• Outlook was also good with FQ1 25 revenues expected to be $23.5bn – $24.5bn ($24bn) with steady gross margins ahead of forecasts at $22.2bn.
• The reality here is that Nvidia has more demand than it can deal with, and so its revenues for the next few quarters will be determined by how much capacity it has purchased from TSMC rather than how much customers have ordered.
• Hence, visibility should be pretty good which is reflected in the pretty tight 4% range it has given for its revenue guidance.
• However, I suspect that it has understated its expectations slightly because it is always better to do better than expected rather than promise the moon and miss.
• Consequently, I expect that the next few quarters will be characterised by a beat and raise but by decreasing amounts as the momentum becomes harder to sustain as a result of the large numbers that are now in play.
• These results were characterised by two main themes:
• First, Nvidia’s contention that accelerated computing and generative AI have hit a tipping point and second, that the mantle of growth is starting to be underpinned by inference rather than training.
• This theme was recently echoed in Jensen’s presentation at the World Government Summit in Dubai where he made the case for accelerated computing and how being able to rent GPUs on a demand basis can benefit the growing start-up ecosystem in the Middle East.
• At the moment all of the inference is being carried out in the cloud and almost all of it is also being executed on Nvidia silicon.
• RFM research has concluded that 2024 is going to be the year of inference and as almost all of it is not ready to move out from the data centre, Nvidia will continue to benefit.
• One thing is clear from the results and conference call which is that Nvidia is the picks and shovels of generative AI and, try as they might, no one else is currently getting a look in.
• This means that for better or for worse, Nvidia is stuck on this rollercoaster and there is no way for it to get off should the bubble burst.
• However, for the next few quarters, there is not a cloud in the sky and I expect that Nvidia will continue to perform well and the shares will reflect that in their valuation.
• Despite the stratospheric rise, the valuation is not unreasonable at 32.5x 2024 and 28.3x 2025 PER making Nvidia a far better proposition than many of the start-ups who are demanding billions in valuations but with no revenues let alone profits.
• It was the tools companies that made money out of the gold rush in the USA and the diamond rush in South Africa and for this rush, Nvidia is the only tool company in town.
• I remain very nervous with regard to the bubble popping as there is ample evidence that these models cannot do many of the things that people expect them to and so I am inclined to sit tight and wait for a crash.
• At that time, the babies will have been thrown out with the bathwater and there will be bargains on offer.