Stellar Financial Performance in Q3 2024
In its fiscal Q3 2024 (ending Oct. 29, 2023), Nvidia delivered outstanding financial results. Revenues soared by 206% YoY to $18.1 billion, while net income surged by a whopping 1,259% YoY to $9.2 billion.
The data center segment, accounting for nearly 80% of Nvidia’s total revenues, experienced an impressive YoY revenue jump of 279% to $14.5 billion. Additionally, the gaming business, which faced challenges with GPU inventory buildup, is showing signs of recovery, with Q3 revenues reaching $2.86 billion, marking an 81% YoY increase.
Multiple AI-Driven Opportunities
CEO Jensen Huang predicts that data centers will invest nearly $1 trillion over the next four years to upgrade general computing to accelerated computing infrastructure. With its domination of the enterprise GPU market (91.4% in 2021), Nvidia’s cutting-edge AI chips (H100 and upcoming H200) are poised to capitalize on this opportunity.
Furthermore, Nvidia’s proprietary InfiniBand networking technology experienced remarkable growth, surging fivefold YoY in Q3. This technology enhances scale and performance for training LLMs. By the end of Q3, Nvidia’s networking solutions had already achieved a $10 billion annualized run rate.
In addition to hardware, Nvidia has made significant strides in its software strategy, projecting around $1 billion in annual revenues from software, support, and services in fiscal 2024.
High Valuation Poses Challenges
As of now, Nvidia is trading at a price-to-sales (P/S) ratio of 25.9, far surpassing the median semiconductor industry valuation of 2.9. While some analysts believe that the company deserves this premium valuation due to its accelerated computing capabilities, market-leading AI-focused data center offerings, and strong financial numbers, others warn that its high valuation could be a deterrent.
Furthermore, Nvidia faces competition in the $7 billion Chinese chip market, with several smaller players vying for market share. This may impact the company’s top line in the coming quarters.
Considering the current valuation and the difficult geopolitical environment, the likelihood of future multiple expansion seems slim. If the average P/S ratio reverts to Nvidia’s five-year average multiple of 22.58 in 2024 (still relatively high), analysts estimate that Nvidia’s market capitalization will reach $2 trillion in 2024. This is less than double the company’s current market capitalization of $1.15 trillion. Analysts anticipate Nvidia’s revenues to be around $90 billion in fiscal 2025, suggesting a potential market capitalization of $2 trillion. Extrapolating these numbers, the share price could reach approximately $820 in the best-case scenarios.
Considering the bullish price target of over $800 and the potential upside of more than 71% in the next 12 months, retail investors may find it prudent to acquire a small stake in Nvidia, even at elevated levels.