Tech-Heavy: Nvidia reckons ‘every $1 spent on a GPU returns $5’ – and experts agree

ON Wall Street last week, US Q1 earnings season got its fairy tale finish after Nvidia (NVDA) produced another super steely set of results, with revenue of US$26bn ahead of estimates at circa $24.5bn.

Nvidia’s stock will now trade under US$200 for the first time in 16 months in just over a week, after the chipmaking darling splits its stock 10-to-1.

This means its shares will go from trading at about US$1,064 to US$106. The stock has simply gotten too big, too fast, too strong – it’s risen more than 600% since the start of 2023, rallied once again following the result, helping push the Nasdaq 100 to a record close on Friday.

Nvidia’s shares have rallied over 20% on average to a new high following its prior splits.

The 10-for-1 forward stock split will go into effect after the market closes on June 7, the company said.

Stock splits don’t alter your basic share price fundamentals in any way, but merely have the effect of making the underlying stock more affordable, which can have a positive psychological impact on retail investors.

Stock splits are a fairly common strategy, with companies including Alphabet, Amazon and Tesla all orchestrating similar stock splits in 2022. When the change goes into effect on June 7, all Nvidia common stockholders will receive an additional nine shares.

It’s happened quickly – the price of Nvidia’s stock has gained more than 25 times in the last five years.

Nvidia CEO Jensen Huan, who as of Friday last was the world’s 17th-richest person, according to Forbes, now has an estimated US$91 billion to his name.

That’s more than double what he was worth last Christmas, Bloomberg notes.

On Friday when the chipmaker dropped its quarterlies, Huang likewise dropped a bomb of hints that Nvidia was only getting started. He expects sales to increase with the launch of its upcoming new graphics processing unit, called Blackwell, later this year.

“The next Industrial Revolution has begun. Companies and countries are partnering with Nvidia to shift to the trillion-dollar installed base of traditional data centres to accelerated computing and build a new type of data centre, Ai factories to produce a new commodity, artificial intelligence.”

The transformation, Huang says, enables productivity gains to almost every industry from cost and energy efficiency savings while expanding revenue opportunities.

That’d put quarter-on-quarter growth of 18% vs 11% expectations. EPS (earnings per share) of $6.12 slightly beat estimates for $6.09, q-o-q, but a staggering 461% jump in EPS on the first fiscal quarter of last year.

Likewise, Q1 revenue is up 262% y-o-y, and the only rider is that the chip-making behemoth will be challenged to keep up with demand for its AI graphic processors.

The cracking numbers smacked the already ionospheric expectations of Wall Street, but more importantly for investors and the stock’s 90% YTD gains, NVDA iced it by offering glittering Q2 guidance, well above analysts’ similarly glittering consensus.

Sky-high valuations?

During the quarter, Nvidia bought back $7.7 billion worth of its shares and paid out $98 million in shareholder dividends.

Going forward, the company intends to increase its cash dividend from four cents per share to 10 cents on a pre-split basis, so when the split comes into effect, the new dividend will amount to a penny per share.

The stock price is up more than 9% in after-hours trading, surpassing $1,000 and increasing its lead over the other Magnificent 7 stocks.

Via Google

NYU’s Aswath Damodaran told US media last week that  Nvidia has taken up the torch, where other momentum trades flickered out like Meta, Google, Apple and Tesla.

“It is testimonial to the power of momentum, everything they touch turns to gold,” Damodaran said on CNBC.

Yet, according to XM Australia CEO Peter McGuire, from a valuation perspective Nvidia is far from being the most overvalued among the mega caps and is comparable to Amazon and Microsoft when looking at their forward 12-month price/earnings ratios.

“This underlines the ongoing attractiveness of the Big Tech despite the stratospheric rise in their share price, as most of them have been able to deliver on the earnings front.

“The few such as Tesla that haven’t, have been brutally punished by the markets,” Peter told Stockhead.

Dan Ives, Wedbush Securities managing director, has been beating the Jensen Huang Fan Club drum and to his credit, the Godfather of AI – as described by Ives – has delivered again with the 1Q25 earnings.

Ives described the results as “a Masterpiece quarter”.

Michael Frazis from Frazis Capital Partners pointed to Huang’s commentary on the financial multiplier effects for Nvidia customers.

Huang set the phones buzzing during the conference call, saying every US$1 of spend on a GPU returns US$5 in earnings to the hyperscalers over a four-year period, equating to a one-year payback. Every US$1 spend on the H100 (Hopped) servers equates to US$7 in revenue over a four-year period.

Frazis says his math adds up to those kinds of numbers too.

Huang also said there’s more to look forward to, with the imminent launch of Nvidia’s next-generation Blackwell GPUs set to drive even more growth later this year.

“We will see a lot of Blackwell revenue this year,” he said, adding that he expects it to arrive in data centres by the fourth quarter.

Wait there’s more.

The company said it was seeing strong demand for its networking components, which are quickly becoming just as important as its GPUs.

That’s because data centre operators are looking to build clusters of tens of thousands of chips that must be interconnected with one another, to power more advanced AI workloads. Networking-related sales came to US$3.2 billion during the quarter, up threefold from a year earlier, primarily thanks to sales of InfiniBand products.

NVDA Q2 guidance of $28bn revenue 

Forward guidance was so far ahead of expectations (of $24.5bn), it was beautiful to the point of anxiety inducing.

Morgan Stanley called it the quarter of “shock and awe” when US$10bn revenue in revenue against the US$28bn guided this time around for 2Q25.

What we’ve just seen may’ve been the last gimme of a quarter for NVDA. With the big guns now throwing everything they can at the AI space, NVDA’s bag of tricks is no longer bulging like Santa’s stocking.

Superlative growth rates and the ability to beat-and-raise from here are going to become more difficult.

Morningstar’s NVDA analyst and equity strategist Brian Colello disagrees.

“Nvidia once again reported stellar quarterly results and provided investors with even rosier expectations for the upcoming quarter, as the company remains the clear winner in the race to build out generative artificial intelligence capabilities. We’re encouraged by management’s commentary that demand for its upcoming Blackwell products.”

“We raise our fair value estimate to $1,050 from $910 as we model stronger data center revenue growth over the next several quarters while maintaining our longer-term growth rates from a higher installed base of AI equipment,” Brian says.

“Shares were up about 6% on the earnings report, and we think the reaction is justified and view shares as fairly valued.”

Barely four minutes into their conference call, management made some comments that were greeted very positively by investors – that for every $1 spent on NVIDIA AI infrastructure, Cloud Service Providers (CSPs) have an opportunity to generate $5 in GPU monetisation over four years.

In an environment where speed matters, NVIDIA’s rich software stack and ecosystem, and tight integration with cloud providers, makes it easy for end-customers to get up and running on NVIDIA GPU in a public cloud.

In turn, this is allowing management to extend their optimism further, suggesting that demand may exceed supply “well into next year”.

Whilst customers will no doubt want viable competitors, in the near-term, the risk of “experimenting” with another GPU is too great and this is being evidenced by customers still taking delivery of the Hopper GPUs, despite the more powerful Blackwell GPU to be shipped later this year (i.e., customers are not delaying purchases of the old GPU so they can receive shipments of the new GPU, like we traditionally see when new models/versions of a product are to be released).

Additionally, and more unexpectedly, the customer base is finally starting to broaden with enterprise ticking up and revenue from sovereign-driven projects ramping much faster than expected (see more below).

Divisionally, it was no surprise that the Data Centre business is now the main focus:

1. Data Centre (DC) sales rose 23% quarter-on-quarter (vs. consensus expectations for 16%) boosted by the continued strong demand of AI products, spearheaded notably by the H100 GPUs (The H100 graphics processing unit (GPU) chip is the most powerful GPU chip on the market and is designed specifically for artificial intelligence (AI) applications. The H100 contains 80 billion transistors, which is 6 times more than its predecessor, the A100 chip. This makes it capable of processing large amounts of data much faster than other GPUs (noting that the H100 will soon be superseded by the GH200 chip).

2. The segment represented 87% of the quarter’s total sales up from 83% in January. While demand for its networking products remains high, the sub-segment dropped sequentially due to supply timing. That said, management expects its networking sales to pick up this quarter.

3. The company added that in terms of DC end-markets, hyperscalers drove robust growth in Q1 (e.g., Amazon, Microsoft, Google), however enterprises, consumer internet companies and other non-hyperscalers markets rose faster this quarter to represent a combined ~55% of NVDA’s data centre revenue in April (or put differently, these very large hyperscalers saw their contribution fall from 55% to 45%).

4. This is significant, as it suggests AI applications and demand are expanding beyond just the hyperscalers, who this far have dominated demand.

Segments and numbers

Gaming revenues fell 8% quarter-on-quarter, much worse than expected and now accounts for just 10% of sales. Automotive sales rose a very strong 17%, 2x expectations, following continued growth of NVDA’s cockpit solutions and self-driving platforms (Level 3 autonomy vehicles have “environment detection” and can make informed decisions for themselves, such as accelerating past a slow-moving vehicle… they also require very advanced algorithms and much larger learning models.

NVDA delivered another quarter of record Free Cash Flow generation at ~$15bn (~58% FCF margin) taking its cash balance to ~$31bn. Given the very strong FCF generation, share repurchases jumped to ~$7.8bn and analysts model this growing to over $10bn through 2025 (>$40bn p.a.)

NVDA also followed in the steps of other mega tech names by announcing a 10-for-1 stock split, which no doubt will further enhance retail participation.

The average Price Target for NVDA increased from US$1,025 to US$1,164 (almost 15%), on the back of 7%-12% EPS upgrades for 1 / 2-year forward EPS.

US$400bn in market cap was added post the March quarter result, which might have been boosted by the announced 10-for-1 stock split. The split has no bearing on the financial outlook, rather a tilt of the goodwill hat to retail investors to increase share purchase availability.

With a US$2.6trn market cap at US$1065 per share, Nvidia could reach US$3trn (15% upside) according to Ives in 2025, thereby superseding Apple at its current valuation and making it the second largest listed US company, after Microsoft.

When it comes to price targets post earnings, analysts implemented an across-the-board upgrade cycle.

Morgan Stanley sits at the more conservative end at US$1160 with Goldmans Sachs and UBS at US$1200, stretching to Jeffries at US$1350 a

LGT Crestone has NVDA up top of its Best-in-Sector List /at US$1,026.39 (+8.2%).

The Consensus Recommendation for NVDA is a Buy and the  Price Target is US$1,164.15.

Nvidia is worth $2.6 trillion — larger than two Metas, three Berkshire Hathaways, or five ExxonMobils. Goldman Sachs called it “the most important stock on planet Earth” for its centrality in the booming AI industry, and his company will likely be worth more than Apple in a few months.

Last week on Wall Street, the S&P500 managed to close slightly higher, clinching a sliver-then fifth straight week of gains, the US benchmark’s longest winning run since just after ‘Straya Day.

That was mainly thanks to Nvidia’s +7% after hours surge on Wednesday, where the chipmaker busted through the $1,000 level for the first time on the back of stunning quarterly results and even better guidance.

Yet, truth be told, after clocking its latest fresh record high on Tuesday in New York, US stocks have largely sat back on their haunches sucking in the big ones as that growing cloud of interest cut mystery continues to gather round Mount Federal Reserve.

T’were those FOMC minutes, the hawky-talky coupled with the unwelcome good economic data, which dented US sentiment last week.

Of course, the Nasdaq Comp got a revivifying shot in the arm when NVDA smashed them haughty Wall Street expectations.

The US Week Ahead

Monday May 27 – Friday May 31

Monday:

US Memorial Day holiday

Germany Ifo business climate (May).
Tuesday:

US Case-Shiller Home Price Index (March)

US consumer confidence (May).

Wednesday:

Germany consumer confidence (June).

Earnings: HP, Salesforce, UiPath.

Thursday:

Switzerland economic growth (Q1).

Earnings: Costco, MongoDB, Zscaler.

Friday:

US PCE inflation (April)

Eurozone flash inflation (May)

Canada economic growth (Q1),

India economic growth (Q1).

The Economic Calendar

Monday May 27 – Friday May 31

MONDAY
BOJ Gov Ueda Speech
CN Industrial Profits (YTD)
JP BOJ Uchida Speech
JP Coincident Index Final MAR
JP Leading Economic Index Final MAR
DE Ifo Business Conditions MAY
EU 20-Year, 3-Year Bond Auction
ECB Lane Speech

TUESDAY
AU Retail Sales MoM Prel APR
ECB Schnabel Speech
US Fed Mester Speech
Germany Wholesale Prices YoY
Germany 10-Year Bund/g Auction

WEDNESDAY
US Money Supply APR
US Fed Cook Speech
12:00 PM
AU Westpac Leading Index
AU Construction Work Done
AU Monthly CPI Indicator APR
JP BOJ Adachi Speech
JP Consumer Confidence MAY
Ger GfK Consumer Confidence JUN
Inflation Rate YoY Prel MAY
FR Consumer Confidence MAY
FR Retail Sales MoM APR -0.5% 1.0%
EU Loans APR
EU M3 Money Supply YoY APR
US MBA 30-Year Mortgage Rate MAY
US Mortgage Market Index MAY
IN M3 Money Supply YoY MAY/17 11.1% 10.9%
US Redbook YoY MAY
THURSDAY
US Richmond Fed Manufacturing Index MAY
US Dallas Fed Services Index MAY
US 2-Year FRN Auction
RU Industrial Production YoY APR
US Fed Williams Speech
US Fed Beige Book
US API Crude Oil Stock Change MAY
AU RBA Hunter Speech
US Fed Bostic Speech
GB Car Production
JP Foreign Bond/ Stock Investment by Foreigners MAY
AU Building Permits MoM Prel APR
AU Building Capital Expenditure
AU Plant Machinery Capital Expenditure
AU Private Capital Expenditure
AU Private House Approvals MoM Prel APR
JP 2-Year JGB Auction
Unemployment Rate APR 7.2% 7.3% 7.3%
08:00 PM
EU Economic Sentiment MAY
Unemployment Rate APR
Consumer Confidence Final MAY
Consumer Inflation Expectations MAY
Industrial Sentiment MAYSelling Price Expectations MAY
Mex Unemployment Rate APR
US GDP Growth Rate
US Corporate Profit
US Goods Trade Balance Adv APR $-91.83B $-91.8B $-93.0B
11:30 PM
US Initial Jobless Claims MAY
US Retail Inventories Ex Autos
US Wholesale Inventories MoM
US Continuing Jobless Claims MAY
US Core PCE Prices
US GDP Sales

FRIDAY
US Pending Home Sales
US EIA Crude Oil Stocks Change
US Fed Williams Speech
US Fed Logan Speech
KOR Industrial Production
KOR Retail Sales MoM APR
JP Unemployment Rate
JP Tokyo Core CPI
AU Housing Credit
AU Private Sector Credit
CN NBS Manufacturing PMI MAY
CN NBS Non Manufacturing PMI MAY
CN NBS General PMI MAY
JP Housing Starts YoY APR
JP Construction Orders
FR Non Farm Payrolls
AU Commodity Prices YoY MAY
FR Inflation Rate YoY Prel MA
FR GDP Growth Rate QoQ Final
FR PPI MoM APR
GB BoE Consumer Credit
EU Inflation Rate
US Core PCE Price Index
US Core PCE Price Index YoY APR 2.8% 2.7%

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