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.<\/p>\n
Nvidia\u2019s 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.<\/p>\n
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 \u2013 it\u2019s 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.<\/p>\n
Nvidia\u2019s shares have rallied over 20% on average to a new high following its prior splits.<\/p>\n
The 10-for-1 forward stock split will go into effect after the market closes on June 7, the company said.<\/p>\n
Stock splits don\u2019t 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.<\/p>\n
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.<\/p>\n
It\u2019s happened quickly \u2013 the price of Nvidia\u2019s stock has gained more than 25 times in the last five years.<\/p>\n
Nvidia CEO Jensen Huan, who as of Friday last was the world\u2019s 17th-richest person, according to Forbes, now has an estimated US$91 billion to his name.<\/p>\n
That\u2019s more than double what he was worth last Christmas, Bloomberg notes.<\/p>\n
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.<\/p>\n
\u201cThe 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.\u201d<\/em><\/p>\n The transformation, Huang says, enables productivity gains to almost every industry from cost and energy efficiency savings while expanding revenue opportunities.<\/p>\n \u00a0<\/p>\n That\u2019d 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.<\/p>\n 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.<\/p>\n The cracking numbers smacked the already ionospheric expectations of Wall Street, but more importantly for investors and the stock\u2019s 90% YTD gains, NVDA iced it by offering glittering Q2 guidance, well above analysts\u2019 similarly glittering consensus.<\/p>\n \u00a0<\/p>\n During the quarter, Nvidia bought back $7.7 billion worth of its shares and paid out $98 million in shareholder dividends.<\/p>\n 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.<\/p>\n 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.<\/p>\n Via Google<\/p>\n NYU\u2019s Aswath Damodaran told US media last week that\u00a0 Nvidia has taken up the torch, where other momentum trades flickered out like Meta, Google, Apple and Tesla.<\/p>\n \u201cIt is testimonial to the power of momentum, everything they touch turns to gold,\u201d Damodaran said on CNBC.<\/p>\n Yet, according to XM Australia CEO Peter McGuire, from a valuation perspective Nvidia<\/span> 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.<\/p>\n \u201cThis 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.<\/p>\n \u201cThe few such as Tesla that haven\u2019t, have been brutally punished by the markets,\u201d Peter told Stockhead.<\/em><\/p>\n \u00a0<\/p>\n <\/a><\/p>\n \u00a0<\/p>\n Dan Ives, Wedbush Securities managing director, has been beating the Jensen Huang Fan Club drum and to his credit, the Godfather of AI \u2013 as described by Ives \u2013 has delivered again with the 1Q25 earnings.<\/p>\n Ives described the results as \u201ca Masterpiece quarter\u201d.<\/p>\n Michael Frazis from Frazis Capital Partners pointed to Huang\u2019s commentary on the financial multiplier effects for Nvidia customers.<\/p>\n 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.<\/p>\n Frazis says his math adds up to those kinds of numbers too.<\/p>\n Huang also said there\u2019s more to look forward to, with the imminent launch of Nvidia\u2019s next-generation Blackwell GPUs set to drive even more growth later this year.<\/p>\n \u201cWe will see a lot of Blackwell revenue this year,\u201d he said, adding that he expects it to arrive in data centres by the fourth quarter.<\/p>\n Wait there\u2019s more.<\/p>\n The company said it was seeing strong demand for its networking components, which are quickly becoming just as important as its GPUs.<\/p>\n That\u2019s 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.<\/p>\n \u00a0<\/p>\n Forward guidance was so far ahead of expectations (of $24.5bn), it was beautiful to the point of anxiety inducing.<\/p>\n Morgan Stanley called it the quarter of \u201cshock and awe\u201d when US$10bn revenue in revenue against the US$28bn guided this time around for 2Q25.<\/p>\n What we\u2019ve just seen may\u2019ve been the last gimme of a quarter for NVDA. With the big guns now throwing everything they can at the AI space, NVDA\u2019s bag of tricks is no longer bulging like Santa\u2019s stocking.<\/p>\n Superlative growth rates and the ability to beat-and-raise from here are going to become more difficult.<\/p>\n Morningstar\u2019s NVDA analyst and equity strategist Brian Colello disagrees.<\/p>\n \u201cNvidia 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\u2019re encouraged by management\u2019s commentary that demand for its upcoming Blackwell products.\u201d<\/p>\n \u201cWe 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,\u201d Brian says.<\/p>\n \u201cShares were up about 6% on the earnings report, and we think the reaction is justified and view shares as fairly valued.\u201d<\/p>\n Barely four minutes into their conference call, management made some comments that were greeted very positively by investors \u2013 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.<\/p>\n In an environment where speed matters, NVIDIA\u2019s 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.<\/p>\n In turn, this is allowing management to extend their optimism further, suggesting that demand may exceed supply \u201cwell into next year\u201d.<\/p>\n Whilst customers will no doubt want viable competitors, in the near-term, the risk of \u201cexperimenting\u201d 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).<\/p>\n 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).<\/p>\n Divisionally, it was no surprise that the Data Centre business is now the main focus:<\/p>\n 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).<\/p>\n 2. The segment represented 87% of the quarter\u2019s 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.<\/p>\n 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\u2019s data centre revenue in April (or put differently, these very large hyperscalers saw their contribution fall from 55% to 45%).<\/p>\n 4. This is significant, as it suggests AI applications and demand are expanding beyond just the hyperscalers, who this far have dominated demand.<\/p>\n \u00a0<\/p>\n 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\u2019s cockpit solutions and self-driving platforms (Level 3 autonomy vehicles have \u201cenvironment detection\u201d and can make informed decisions for themselves, such as accelerating past a slow-moving vehicle\u2026 they also require very advanced algorithms and much larger learning models.<\/p>\n 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.)<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n When it comes to price targets post earnings, analysts implemented an across-the-board upgrade cycle.<\/p>\n 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<\/p>\n LGT Crestone has NVDA up top of its Best-in-Sector List \/at US$1,026.39 (+8.2%).<\/p>\n The Consensus Recommendation for NVDA is a Buy and the\u00a0 Price Target is US$1,164.15.<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n <\/a><\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n A solid quarter for earnings<\/strong><\/p>\n All three of the major US indices managed to more than recover from the April pullback to notch up fresh record highs on the back of the stellar earnings season.<\/p>\n From the 93% of S&P 500 companies that had reported as of May 17, 60% posted better-than-expected revenue, while earnings on average grew by 5.7% in Q1, making it the best quarter since Q2 2022 according to FactSet.<\/p>\n<\/div>\n Nvidia is worth $2.6 trillion \u2014 larger than two Metas, three Berkshire Hathaways, or five ExxonMobils. Goldman Sachs called it \u201cthe most important stock on planet Earth\u201d for its centrality in the booming AI industry, and his company will likely be worth more than Apple in a few months.<\/p>\n 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\u2019s longest winning run since just after \u2018Straya Day.<\/p>\n That was mainly thanks to Nvidia\u2019s +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.<\/p>\n 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.<\/p>\n T\u2019were those FOMC minutes, the hawky-talky coupled with the unwelcome good economic data, which dented US sentiment last week.<\/p>\n Of course, the Nasdaq Comp got a revivifying shot in the arm when NVDA smashed them haughty Wall Street expectations.<\/p>\n \u00a0<\/p>\n Monday: <\/strong><\/p>\n US Memorial Day holiday<\/p>\n Germany Ifo business climate (May). US Case-Shiller Home Price Index (March)<\/p>\n US consumer confidence (May).<\/p>\n Wednesday: <\/strong><\/p>\n Germany consumer confidence (June).<\/p>\n Earnings:<\/em> HP, Salesforce, UiPath.<\/p>\n Thursday: <\/strong><\/p>\n Switzerland economic growth (Q1).<\/p>\n Earnings:<\/em> Costco, MongoDB, Zscaler.<\/p>\n Friday: <\/strong><\/p>\n US PCE inflation (April)<\/p>\n Eurozone flash inflation (May)<\/p>\n Canada economic growth (Q1),<\/p>\n India economic growth (Q1).<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n MONDAY TUESDAY WEDNESDAY FRIDAY <\/span><\/p>\n The post Tech-Heavy: Nvidia reckons \u2018every $1 spent on a GPU returns $5\u2019 \u2013 and experts agree<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Sky-high valuations?<\/strong><\/h2>\n
NVDA Q2 guidance of $28bn revenue\u00a0 <\/strong><\/h2>\n
Segments and numbers<\/h2>\n
The AI effect<\/strong><\/h2>\n
The US Week Ahead<\/h2>\n
Monday May 27 \u2013 Friday May 31<\/strong><\/h2>\n
\nTuesday:<\/p>\nThe Economic Calendar<\/h2>\n
Monday May 27 \u2013 Friday May 31<\/strong><\/h2>\n
\nBOJ Gov Ueda Speech
\nCN Industrial Profits (YTD)
\nJP BOJ Uchida Speech
\nJP Coincident Index Final MAR
\nJP Leading Economic Index Final MAR
\nDE Ifo Business Conditions MAY
\nEU 20-Year, 3-Year Bond Auction
\nECB Lane Speech<\/p>\n
\nAU Retail Sales MoM Prel APR
\nECB Schnabel Speech
\nUS Fed Mester Speech
\nGermany Wholesale Prices YoY
\nGermany 10-Year Bund\/g Auction<\/p>\n
\nUS Money Supply APR
\nUS Fed Cook Speech
\n12:00 PM
\nAU Westpac Leading Index
\nAU Construction Work Done
\nAU Monthly CPI Indicator APR
\nJP BOJ Adachi Speech
\nJP Consumer Confidence MAY
\nGer GfK Consumer Confidence JUN
\nInflation Rate YoY Prel MAY
\nFR Consumer Confidence MAY
\nFR Retail Sales MoM APR -0.5% 1.0%
\nEU Loans APR
\nEU M3 Money Supply YoY APR
\nUS MBA 30-Year Mortgage Rate MAY
\nUS Mortgage Market Index MAY
\nIN M3 Money Supply YoY MAY\/17 11.1% 10.9%
\nUS Redbook YoY MAY
\nTHURSDAY<\/strong>
\nUS Richmond Fed Manufacturing Index MAY
\nUS Dallas Fed Services Index MAY
\nUS 2-Year FRN Auction
\nRU Industrial Production YoY APR
\nUS Fed Williams Speech
\nUS Fed Beige Book
\nUS API Crude Oil Stock Change MAY
\nAU RBA Hunter Speech
\nUS Fed Bostic Speech
\nGB Car Production
\nJP Foreign Bond\/ Stock Investment by Foreigners MAY
\nAU Building Permits MoM Prel APR
\nAU Building Capital Expenditure
\nAU Plant Machinery Capital Expenditure
\nAU Private Capital Expenditure
\nAU Private House Approvals MoM Prel APR
\nJP 2-Year JGB Auction
\nUnemployment Rate APR 7.2% 7.3% 7.3%
\n08:00 PM
\nEU Economic Sentiment MAY
\nUnemployment Rate APR
\nConsumer Confidence Final MAY
\nConsumer Inflation Expectations MAY
\nIndustrial Sentiment MAYSelling Price Expectations MAY
\nMex Unemployment Rate APR
\nUS GDP Growth Rate
\nUS Corporate Profit
\nUS Goods Trade Balance Adv APR $-91.83B $-91.8B $-93.0B
\n11:30 PM
\nUS Initial Jobless Claims MAY
\nUS Retail Inventories Ex Autos
\nUS Wholesale Inventories MoM
\nUS Continuing Jobless Claims MAY
\nUS Core PCE Prices
\nUS GDP Sales<\/p>\n
\nUS Pending Home Sales
\nUS EIA Crude Oil Stocks Change
\nUS Fed Williams Speech
\nUS Fed Logan Speech
\nKOR Industrial Production
\nKOR Retail Sales MoM APR
\nJP Unemployment Rate
\nJP Tokyo Core CPI
\nAU Housing Credit
\nAU Private Sector Credit
\nCN NBS Manufacturing PMI MAY
\nCN NBS Non Manufacturing PMI MAY
\nCN NBS General PMI MAY
\nJP Housing Starts YoY APR
\nJP Construction Orders
\nFR Non Farm Payrolls
\nAU Commodity Prices YoY MAY
\nFR Inflation Rate YoY Prel MA
\nFR GDP Growth Rate QoQ Final
\nFR PPI MoM APR
\nGB BoE Consumer Credit
\nEU Inflation Rate
\nUS Core PCE Price Index
\nUS Core PCE Price Index YoY APR 2.8% 2.7%<\/p>\n