Nvidia impressed again with a beat this quarter and a raise next quarter. However, that wasn’t enough to move the stock price. It was during the earnings call that we saw the stronger price action when management discussed the Blackwell architecture. The first question on the call was a direct question on when Blackwell will be in production:
Q: “So this year, we will see Blackwell revenue, it sounds like?”
A: The CEO offered one, simple sentence in a measured tone: “We will see a lot of Blackwell revenue this year.”
The call could have probably ended there as that one simple sentence shed light on what has been the predominant concern — can Blackwell keep up with Hopper. If you read my analysis published in Forbes this morning, then you know that the I/O Fund thinks a $200 billion data center segment is in sight by the end of CY2025.
There were other bullish comments about Blackwell ramping this year, such as “We will be shipping [Blackwell]. Well, we've been in production for a little bit of time. But our production shipments will start in Q2 and ramp in Q3, and customers should have data centers stood up in Q4.” This was strong language to use as it’s quite clear that Hopper has runway left given the beat/raises we saw in this quarter. To have the two architectures merge seamlessly in terms of timing in H2 is quite ideal.
Revenue and EPS:
Revenue of $26 billion is up 18% QoQ and up 262% from the year ago quarter. This means Q4 was officially the peak quarter for revenue growth, which we covered previously. Revenue beat expectations by 5.9% with analysts expecting $24.6 billion in revenue for growth of 242% YoY.
Nvidia will now face tougher comps as it laps Hopper’s impact from last year. The company is off to a decent start by forecasting next quarter revenue of $28 billion. Analysts were expecting $26.84 billion. This represents growth of 107% up from growth of 98.8% expected.
The intra-quarter revisions are particularly strong. However, regardless of ongoing upward revisions, it’s unlikely we return to the peak growth we saw in Q4 and Q1 (current quarter).
- GAAP EPS of $5.98 compares EPS of $4.93 last quarter. This represents QoQ earnings growth of 21.3% and YoY earnings growth of 629%.
- Adjusted EPS of $6.12 beat estimates of $5.58. This represents growth of 18.6% QoQ and 461% growth YoY.
Margins:
As expected, margins have expanded across the board.
- GAAP gross margin of 78.4% compares to 64.6% in the year ago quarter, up 13.8 points YoY and up 240 bps from last quarter. This represents gross profit of $20.94 billion.
- We will see a softening in gross margin due to a deceleration from peak revenue. Management is guiding for GAAP gross margin of 74.8% for next quarter with added color that the full year gross margins “are expected to be in the mid-70% range.”
- Adjusted gross margin of 78.9% compares to 66.8% in the year ago quarter, up 12.1 points YoY and 220 bps from last quarter. Management is guiding for adjusted gross margin of 75.5%. This represents adjusted gross profit of $21.1 billion.
- GAAP operating margin of 64.9% compares to 50.3% in the year ago quarter. This represents operating profit of $16.9 billion.
- For next quarter, GAAP OPM is expected to soften to 60.5%, according to management’s guidance.
- Adjusted operating margin of 69.3% was reported for Q1, representing adjusted operating profit of $18.05 billion.
- For next quarter, adjusted operating margin is expected to soften to 65.5%.
- Net margin this quarter was 57.1% compared to 28.4% in the year ago quarter, and was up 150 basis points QoQ. This represents net profit of $14.9 billion. The adjusted net margin this quarter was 58.5%.
Cash Flow:
Cash flow was strong (unsurprisingly) with some of the highest free cash flow margins among the Mag 7:
- Operating cash flow of $15.35 billion represents a margin of 58.9% which expanded 690 bps QoQ from 52% and expanded 18.4 points in the year ago quarter.
- Free cash flow of $14.94 billion represents a margin of 57.3%, which was up 660 bps and is up 20.5 points YoY.
The company has $31.4 billion in cash and $9.71 billion in debt.
Nvidia announced a ten-for-one stock split, which will be effective June 6th, 2024. Trading will commence on a split-adjusted basis at market open Monday, June 10th, 2024.
Nvidia is increasing its cash dividend by 150% from $0.04 per share to $0.10 per share of common stock. The increased dividend is equivalent to $0.01 per share on a post-split basis. This quarter, the company utilized cash of $7.8 billion towards shareholder returns, including $7.7 billion in share repurchases and $98 million in cash dividends.
Key Segments:
Data center revenue of $22.6 billion, was up 427% YoY and up 23% QoQ. This marks an annualized run rate of $90 billion. We made the argument in today’s Forbes analysis that we could see a $200 billion data center segment by the close of FY2026 based on the strength of the Blackwell architecture, which would represent 65% upside from current analyst data center estimates. This requires speculation, of course, but management did state this in the call: “Blackwell will be available in over 100 OEMs at launch nearly double compared to Hopper, and will support broad and fast deployments.”
Management’s Q2 guide implies data center revenue of about $24 billion next quarter. This is assuming $4 billion from the other four segments, which reported a combined $3.5 billion this quarter. The CFO stated all segments would be up in Q2 on QoQ basis: “We expect sequential growth in all market platforms.”
- Gaming reported revenue of $2.65 billion, which was up 18% YoY yet is down 8% QoQ. The company said the following in the opening remarks: “GeForce RTX GPUs, now with over 100 million installed base, gamers, creators and AI enthusiasts, unmatched performance for Gen AI on PCs.”
- ProViz revenue of $427 million, was up 45% YoY and down 8% QoQ
- Automotive was up 11% YoY and up 17% QoQ
- OEM and other revenue of $78 million was up 1% YoY but down 13% QoQ.
Earnings Call:
One of the key points in the earnings call was the ROI that cloud service providers will see from renting GPUs. This may have been provided to help shine some light on why capex budgets continue to grow.
“For every $1 spent on NVIDIA AI infrastructure, cloud providers have an opportunity to earn $5 in GPU instant hosting revenue over four years. NVIDIA's rich software stack and ecosystem and tight integration with cloud providers makes it easy for end customers up and running on NVIDIA GPU instances in the public cloud.”For every $1 spent on NVIDIA AI infrastructure, cloud providers have an opportunity to earn $5 in GPU instant hosting revenue over four years. NVIDIA's rich software stack and ecosystem and tight integration with cloud providers makes it easy for end customers up and running on NVIDIA GPU instances in the public cloud.”
“For example, using Llama 3 with 700 billion parameters, a single NVIDIA HGX H200 server can deliver 24,000 tokens per second, supporting more than 2,400 users at the same time. That means for every $1 spent on NVIDIA HGX H200 servers at current prices per token, an API provider serving Llama 3 tokens can generate $7 in revenue over four years.”That means for every $1 spent on NVIDIA HGX H200 servers at current prices per token, an API provider serving Llama 3 tokens can generate $7 in revenue over four years.”
The company also went out of its way to highlight that they are well diversified beyond major cloud providers by pointing out that: “Large cloud providers continue to drive strong growth as they deploy and ramp NVIDIA AI infrastructure at scale and represented the mid-40s as a percentage of our Data Center revenue.” They highlighted that enterprises like Tesla and consumer internet companies like Meta are also strong growth verticals. Management also emphasized that it’s not only companies they have as customers, but also countries like Singapore and Japan.
When asked about why customers would continue to buy Hopper (if Blackwell is going to deliver 4X faster training and 30X faster inference), the answer was stated quite well:
Jensen Huang (CEO):
“If you're 5% into the build-out versus if you're 95% into the build out, you're going to feel very differently. And because you're only 5% into the build-out anyhow, you build as fast as you can. And when Blackwell comes, it's going to be terrific. And then after Blackwell, as you mentioned, we have other Blackwells coming. And then there's a short — we're in a one-year rhythm as we've explained to the world. And we want our customers to see our road map for as far as they like, but they're early in their build-out anyways and so they had to just keep on building, okay. And so there's going to be a whole bunch of chips coming at them, and they just got to keep on building and just, if you will, performance average your way into it. So that's the smart thing to do. They need to make money today. They want to save money today. And time is really, really valuable to them. Let me give you an example of time being really valuable, why this idea of standing up a data center instantaneously is so valuable and getting this thing called time to train is so valuable. The reason for that is because the next company who reaches the next major plateau gets to announce a groundbreaking AI. And the second one after that gets to announce something that's 0.3% better. And so the question is, do you want to be repeatedly the company delivering groundbreaking AI or the company delivering 0.3% better? And that's the reason why this race, as in all technology races, the race is so important.”
Conclusion:
Over the past three days I’ve written 6,000 words on Nvidia. The goal was to get us prepared no matter the reaction to the earnings report. Rather than write a new conclusion, I will simply restate the one I published this morning, which is that Nvidia has sold off 10% or greater about 9 times since the 2022 low. We see any dips as buying opportunities as we brace for Blackwell toward the end of this year.
To read more on Blackwell, reference the analysis: “Nvidia Q1 Earnings Preview: Blackwell And The $200B Data Center”Nvidia Q1 Earnings Preview: Blackwell And The $200B Data Center”Nvidia Q1 Earnings Preview: Blackwell And The $200B Data Center”
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