Buy The Dip In NVIDIA, Before It’s Too Late

Accelerating Demand Drives NVIDIA To Record Results 

NVIDIA NASDAQ: NVDA shares moved lower in the wake of the company’s very strong Q4 results because concern over margins emerged that we think is entirely overblown. The company expanded margin and produced record-setting results for Q4 and FY2021 and is guiding those margins to be flat on a YOY. To be fair, the GAAP gross margin is expected to contract by 20 basis points but this is 20 basis points from a record and the adjusted margin should show no change. The takeaway, for us at least, is that revenue guidance for Q1 is well above the Marketbeat.com consensus and the adjusted margin will be flat. That’s fantastic news, especially with the outlook for the industry as strong as it is. 

Rosenblatt analyst Hans Mosesmann doubled down on his view the entire industry is in the “mother of all cycles” and that NVIDIA specifically will benefit from increasing AI and cloud workloads. "Nvidia continues to destroy the notion of an end of the semiconductor cycle and sets the stage for a secular dynamic that we see as never seen in the history of semiconductors," Mosesmann wrote in his note to investors. "Hence, our continued view of this dynamic as the Mother of All Cycles."

NVIDIA Blows Past Consensus On Strong Demand 

NVIDIA had a truly stunning quarter with revenue up 52.8% to $7.64 billion. This is the 7th consecutive quarter of growth at or above 50% and the outlook for sequential gains continues to be robust. The revenue also beat the Marketbeat.com consensus by $0.210 billion or 280 basis points so there is real strength in the numbers. Gains were driven by Gaming, Data Center, and Pro visual which grew by 37%, 71%, and 109% and were offset by a 14% decline in Automotive/Robotics. 

“We are seeing exceptional demand for NVIDIA computing platforms,” said Jensen Huang, founder and CEO of NVIDIA. “NVIDIA is propelling advances in AI, digital biology, climate sciences, gaming, creative design, autonomous vehicles, and robotics – some of today's most impactful fields. We are entering the new year with strong momentum across our businesses and excellent traction with our new software business models with NVIDIA AI, NVIDIA Omniverse and NVIDIA DRIVE,” he said.

And the strength is carrying through to the bottom line as well. The company gross margin improved by 230 basis points over last year, 150 basis points adjusted and drove outsized gains in earnings too. On the bottom line, the GAAP $1.08 is up 103% to a company record while the adjusted $1.32 is up a smaller 70% YOY but beat the consensus by a dime. Looking forward, the company is guiding revenue to a sequential gain of 6% at the low end of the range compared to the consensus for contraction, and margins are expected to hold up. 

The Technical Outlook: NVIDIA Is Trading At A Discount 

Shares of NVIDIA are trading at a discount relative to the analyst's consensus and we think their $330 target is the least of what investors should expect. That target puts the stock back to its all-time high with the high-price target of $400 projecting another 21% of gains on top of that. The $400 high price target is held by multiple analysts including Rosenblatt so we think it will be exceeded, given time. Technically speaking, the stock is bouncing off of a correction bottom and having a hard time gaining traction. There may be another pullback in prices but we would view it is as a buying opportunity if it presented itself. If, however, shares prices begin to move higher, we would consider a move above the 30-day EMA a trigger to buy.