Categories Analysis, Technology

Nvidia (NVDA) looks set to thrive on AI power in the long term

The company expects revenues and gross margin to reach new highs in the first quarter; the projection is above analysts' forecast

Nvidia Corporation (NASDAQ: NVDA) this week reported blockbuster results for the fourth quarter of 2024, aided by the graphic card behemoth’s booming AI business. The Q4 outcome matched its blowout performance in the previous quarter. The post-earnings rally drove the stock to a new high, and at one point Nvidia replaced Alphabet as the third most valuable US company.  

The stock gained a whopping 17% soon after the earnings announcement on Wednesday evening. The share price has more than tripled in the past twelve months. While analysts are almost unanimous in their buy recommendation for the stock, many prospective investors would it expensive. However, the recent trend indicates that there is still a lot of room for NVDA to grow.

AI Boom

Ever since the AI boom started, there has been a spike in the demand for Nvidia’s AI chips across all major industries, ranging from cloud service providers and enterprise software companies to consumer internet providers and automotive manufacturers. Last year, around 40% of the company’s data center revenue was for AI inference. The chipmaker expects its next-generation Hopper products, a GPU microarchitecture designed for data centers, to be supply-constrained as demand far exceeds supply.

Nvidia’s CFO Colette Kress said at the Q4 earnings call, “The versatility and leading performance of our data-center platform enables a high return on investment for many use cases, including AI training and inference, data processing and a broad range of CUDA accelerated workloads. We estimate in the past year approximately 40% of data-center revenue was for AI inference. Building and deploying AI solutions has reached virtually every industry.”

Record Revenue

Revenues climbed to $22.1 billion in the January quarter from $6.05 billion a year earlier, mainly reflecting a strong performance by the core Data Center business – revenue more than doubled year-over-year to a new record and topped expectations. Revenue from Gaming, the second-largest business segment, climbed 56% annually. The accelerated growth is attributable to a spike in the demand for the company’s AI chips.

Driven by the strong top-line growth, adjusted profit jumped four-fold to $5.16 per share. Unadjusted net income came in at $12.29 billion or $4.93 per share in Q4, compared to $1.41 billion or $0.57 per share a year earlier. The results topped expectations – it is worth noting that the company’s earnings beat estimates almost in every quarter over the past decade.

Bullish Outlook

Anticipating the positive momentum to continue, the management is looking for revenues of around $24 billion for the first quarter of 2025 when gross margin is expected to rise to an impressive 76%. The projection is above analysts’ estimates.

Extending the post-earnings rally, NVDA traded up 15% on Thursday afternoon. The stock has grown about 60% this year alone.

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