In Q3 of fiscal 2024, Nvidia reported impressive performance metrics, highlighting its strong position in the AI and GPU markets. These key points showcase the company’s stellar growth:
Data Center Revenue Surge: Nvidia experienced a remarkable 279% year-over-year increase in data center revenue, reaching $14.51 billion. This surge underscores the growing demand for high-performance GPUs in data center applications, including AI and cloud computing.
Overall Revenue Growth: Nvidia’s overall revenue surged by an impressive 206% year over year, reaching $18.12 billion. This robust growth demonstrates the company’s ability to capitalize on emerging technology trends, particularly in AI.
Gross Margin Expansion: The company achieved a gross margin of 74%, up from 70.1% in the previous quarter (Q2 2023) and 53.6% in Q3 2023. This improved margin indicates efficient cost management and increased profitability.
Non-GAAP Earnings Per Share (EPS): Nvidia reported a staggering 593% year-over-year increase in non-GAAP (adjusted) earnings per share, reaching $4.02. This remarkable growth in earnings highlights the company’s ability to translate its revenue growth into profitability.
Nvidia’s attractive valuation
While Nvidia’s stock currently trades at a forward price-to-earnings (PE) multiple of roughly 45 times this year’s expected earnings, this valuation may appear growth-dependent at first glance. However, considering the company’s rapid earnings growth, this PE multiple appears relatively low.
In perspective, other tech giants like Microsoft, with a 27% year-over-year earnings growth in its last quarter, trade at a forward PE of 34. Similarly, Apple, with a 13% year-over-year earnings growth in its most recent quarter, has a forward PE of approximately 28.
Given Nvidia’s exceptional growth, its current PE ratio suggests the stock may be undervalued. The primary reason for this conservative valuation lies in Nvidia’s historical vulnerability to cyclical performance shifts.
Nvidia’s path to reducing cyclical exposure
To mitigate its exposure to future cyclical downturns, Nvidia is implementing strategic initiatives to build software and service components that generate dependable recurring revenue streams with consistently high margins.
As the leading provider of GPUs for high-performance computing applications, Nvidia is well-positioned to expand its data center business. The company has recently ventured into the AI-as-a-service (AIaaS) sector, which could reduce cyclicality and create new, high-margin revenue streams.
The future of Nvidia in the AI revolution
Nvidia is still in the early stages of capitalizing on the massive long-term trends associated with the AI revolution. Its current earnings multiples appear modest when viewed in the context of its remarkable momentum and the vast opportunities in the AI sector.
Furthermore, the potential for the Federal Reserve to significantly cut interest rates in the coming years could lead investors to assign higher growth-dependent valuation multiples to stocks. While there are no guarantees that rate cuts and AI trends will drive the Nasdaq to new highs in 2024, Nvidia remains an attractive option for investors looking to capitalize on AI-related growth.
Long-term investment perspective
Long-term investors who seek to build positions in leading companies at the forefront of world-shaping trends position themselves to reap substantial rewards when the next bull market emerges. With its dominant position in the AI and GPU markets, Nvidia is well-aligned with these objectives.