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NFTs and metaverse were all the rage just a few months back, prompting Facebook to implement a complete revamp of its ethos – one that may or may not yield dividends by the tail-end of this decade. Now, however, AI is the new flashy buzzword, and NVIDIA is jumping head over heels into this emergent frenzy.
In spite of large, YoY reductions in rev (-21%) and EPS (-33%), @NVIDIA/ $NVDA did beat expectations handily by 9.46% and revenue by .53%. Solid guide, too.
-DC: +11% via US CSP AI
-Gaming: -46% via inventory rebalance, lack of AAA, crypto. +16% sequentially is very positive.… pic.twitter.com/iCY3tWbgKf— Patrick Moorhead (@PatrickMoorhead) February 23, 2023
As we noted in a dedicated post, NVIDIA beat expectations on its top-line and bottom-line metrics. To wit, the company reported revenue of $6.05 billion for the fourth quarter of 2022, exceeding expectations by $31.6 million. Similarly, the semiconductor giant reported a net income of $1.4 billion and adjusted EPS of $0.88, beating expectations by 10 percent.
Additionally, the weakness in NVIDIA’s gaming division appears to be firmly lodged in the rearview mirror now, with the division posting a healthy sequential growth of 16 percent in revenue.
Here's how many times these companies mentioned #AI on their latest earnings calls:
◦Nvidia: 75 times
◦Google: 62 times
◦Facebook: 33 times
◦Microsoft: 31 times
◦Apple: 2 times
◦Amazon: 0 times@CNBC— Carl Quintanilla (@carlquintanilla) February 23, 2023
While NVIDIA showed an overall improvement in its financials, the fourth quarter earnings call was all about AI. As shown in the tweet above, the word AI was mentioned at least 75 times during the company’s earnings call.
Inspired by the prevailing hype around ChatGPT and other generative AI iterations, NVIDIA has jumped onto this hype-filled bandwagon via its AI-as-a-service business model. Under this model, NVIDIA will soon allow cloud-based access to its AI-training supercomputer. Further details are expected to materialize at NVIDIA’s upcoming spring GTC in March.
Moreover, with OpenAI – the company behind ChatGPT – sourcing around 25,000 GPUs from NVIDIA to meet server demand, the proverbial party is only just now beginning for the semiconductor giant. As per a recent commentary from KeyBanc, the ChatGPT generative AI model is itself using around 10,000 A100 GPUs, contributing around $100 million directly to NVIDIA’s top-line metric.
But, with NVIDIA shares up over 65 percent so far this year, the stock is again approaching the overvalued territory. Consider the fact that the stock's forward P/E ratio is hovering at 53.5x currently.
Additionally, the company's NTM (next twelve months) EPS is also hovering at 53.0x vs. 26.6x for AMD.
$NVDA Look, right now AI & ability to run Large Language Models is all that matters. So Rev -21% 😰, EBIT -58% 😭, big Q4 miss in Data Center & a 🦄 valuation (45x ‘24 EBITDA) after the YTD run-up? Noone cares! Everyone’s AI capex is Nvidia’s future revenue. AI-as-a-service! 🤤 pic.twitter.com/GZYdOKq7Kj
— Wasteland Capital (@ecommerceshares) February 23, 2023
While AI is clearly a potent tailwind for NVIDIA, the persistent specter of a recession and the attendant demand weakness can spell disaster for investors who are bidding up the stock to the stratosphere on “hopium” alone.
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