NVIDIA’s Rally is Far From Over, Neither is Volatility

Key Points

• NVIDIA posted another stunning quarter with outperformance driven by increased demand for data center chips and services. 
• Guidance was raised above consensus and will lead the analysts to revise their estimates and price targets. 
• The stock is at a new high and likely to trend higher, but volatility is also expected to rise. 

NVIDIA NASDAQ: NVDA produced another beat-and-raise quarter that says one thing: as much hype as there is about the AI industry, the market grossly underestimated the impact and importance of NVIDIA semiconductors. The company’s results are so above the consensus estimate they are mind-boggling without the fact that this is the 5th consecutive quarter for such results. 

Based on the results, quarterly achievements, and guidance, the next quarter will be just as good. The takeaway is that a revolution in data centers is underway, which centers on NVIDIA and its super-computing chips. The data center industry is growing at a double-digit CAGR and shifting from old chips to new accelerators, providing a dual-tailwind for the business.

NVIDIA Hits New High on Beat-and-Raise Quarter

NVIDIA had a stunning quarter with revenue of $26.04 billion, growing 262% compared to last year and beating the consensus estimate by 580 basis points. The 580 basis points are a significant margin of outperformance, made more so by the revisions; analysts set the bar high. The strength was driven by growth in all segments led by the Data Center. 

Data Center grew by 427% to $22.6 billion and accounted for the bulk of revenue, about 87%. Growth was underpinned by demand for generative AI training on the Hopper platform within the DC segment. Automotive was the weakest segment, with a 17% increase. Gaming fell 8% sequentially but rose 18% YOY, while Profesional Visualization increased by 45%. 

Margin is another strength. The company is spending heavily to meet demand and advance technology, but leverage gained from the top-line strength more than offsets it. The result is high-triple-digit increases in operating income, net income, and GAAP and adjusted earnings. The GAAP EPS is up 630% and adjusted 461% to outpace consensus by nearly 1000 basis points. 

The results are not a fluke. Demand for the chips is strong and will be sustained due to the upcoming release of new technology, including the Blackwell platform. The Blackwell platform is a new GPU micro-architecture for generative AI following the Hopper platform, which now dominates the market. It is eagerly awaited by companies like Amazon’s NASDAQ: AMZN AWS, Alphabet’s NASDAQ: GOOGL Google Cloud, Microsoft NASDAQ: MSFT, and Oracle NYSE: ORCL, the other four leaders in the AI revolution. 

NVIDIA Guidance Shocks Market: Analysts Raise Targets, Forecast 

NVIDIA’s Q1 results are not the end of the market-moving news. Demand for chips and services continues to grow, leading the company to issue guidance far above consensus as the Q1 results. The company forecasts $28 billion in net revenue compared to the $26.5 billion consensus reported by Marketbeat.com, which is about 107% YOY growth and is sufficient to demand revisions from analysts. 

The bad news is that as robust as it is, growth is now forecast to slow versus accelerate, which may become a problem for the market later this year. Until then, the consensus estimate assumes the stock is fairly valued near $1,000, with revisions leading the market. The latest updates include a new high target from Rosenblatt set two days before the release. At the time, they saw the stock at $1,400 or about 40% of upside. 

NVIDIA Hits New High; Volatility Expected 

NVIDIA hit a new high following the release and will likely continue to trend higher this year. However, investors should expect volatility and whipsaw action along the way to provide ample opportunity to buy the dips. The stock is up 900% in the last eighteen months, providing an attractive profit for early investors and a stock split is in play. The company approved a 10-for-1 stock split effective June 7th to make the stock price more accessible for employees and a wider range of investors. Record highs split-adjusted pricing and more shares could result in a price correction and entry point for new money.