"Generative AI has reached a tipping point!" NVIDIA's fourth-quarter revenue, profit, and first-quarter guidance all exceeded expectations, with the stock price rising 10% after hours | Earnings Report Insights

The highly anticipated NVIDIA fourth-quarter earnings report was released after the market closed on Wednesday. The report revealed that despite facing extremely high market expectations, NVIDIA's fourth-quarter revenue and profits both surged year-on-year and exceeded analysts' expectations. The company's revenue and profits have set record highs for three consecutive quarters. Jensen Huang stated that generative AI has reached a "tipping point," and the CFO mentioned that the market demand for the next generation of products far exceeds the supply level. NVIDIA's stock price surged by as much as 10% after hours.

Revenue Soars by 265%, Profits Surge by 769%

According to the financial report, benefiting from the sharp increase in demand for server AI chips, NVIDIA's fourth-quarter revenue reached $22.1 billion, a 22% increase quarter-on-quarter and a staggering 265% increase year-on-year, surpassing analysts' expectations of $20.41 billion. The quarterly revenue even exceeded the full-year revenue for 2021.

The largest source of revenue for NVIDIA comes from the data center segment, with fourth-quarter revenue reaching $18.4 billion, a 409% increase year-on-year, higher than analysts' expectations of $17.21 billion.

The fourth-quarter net profit was $12.3 billion, a 769% increase year-on-year, with an adjusted earnings per share of $5.16, higher than analysts' expectations of $4.59. The adjusted profit margin for the fourth quarter was 76.7%, exceeding analysts' expectations of 75.4%.

For the entire fiscal year 2024, NVIDIA's revenue increased by 126% to $60.9 billion. In addition, NVIDIA expects first-quarter revenue to be $24 billion, with a fluctuation range of no more than 2%, far exceeding the market's expectation of $21.9 billion.

NVIDIA's stock price fell by 4% on Wednesday, but rose by up to 10% after the financial report was released. Driven by the surge in demand for AI chips, the company's stock price has already risen by 36% this year, increasing its market value by over $400 billion to reach $1.67 trillion. As of February 20th, in the past 30 trading days, NVIDIA's average daily trading volume was approximately $30 billion, surpassing that of the electric vehicle manufacturer Tesla (TSLA.O), whose average daily trading volume during the same period was $22 billion.

Generative AI Reaches Tipping Point, Next-Generation Product Demand to Exceed Expectations

"Accelerated computing and generative AI have reached a tipping point. Demand from companies, industries, and countries worldwide is surging," said Jensen Huang, NVIDIA's founder and CEO. "Our data center platform is being driven by increasingly diverse factors, whether it's data processing from large cloud service providers or specialized GPU providers."The demand for training and reasoning comes from both enterprise software and consumer internet companies. In vertical industries such as automotive, financial services, and healthcare, the scale has now reached billions of dollars."

Investors are closely watching NVIDIA's data center business, including the company's H100 graphics cards, which are widely used to support generative AI applications like OpenAI's ChatGPT, currently in high demand due to fierce competition among major tech giants.

Since the launch of ChatGPT by OpenAI in November 2022, more and more well-known startups such as Alphabet, Meta, Anthropic, and Cohere have released more powerful versions of large language models that require significant computational power. NVIDIA's chips have become the main force in the AI boom, with an estimated market share of over 80% in AI computing. Data shows that Amazon, Meta, Microsoft, and Google are NVIDIA's largest customers, accounting for nearly 40% of its revenue, as major tech giants are eager to invest in AI computing hardware.

Huang Renxun stated, "The NVIDIA RTX launched less than six years ago is now a massive PC platform used by 100 million gamers and creators for generative AI. In the coming year, the company will bring significant new product cycles and outstanding innovations to help drive our industry forward. Join us at next month's GTC, where we and our rich ecosystem will unveil an exciting future."

NVIDIA CFO Colette Kress stated during the earnings conference call that the market demand for the company's next-generation products far exceeds the supply level, as "building and deploying AI solutions has touched nearly every industry."

Huang Renxun also mentioned that the overall supply situation is improving but still facing shortages, and the supply constraints will continue throughout the year. He said that due to the shift in demand for generative AI and overall industry computing hardware from CPUs to NVIDIA-manufactured accelerators, the demand for the company's GPUs will remain high.

"Fundamentally, the conditions for sustained growth beyond 2025 are very favorable."

However, analysts expect that the advanced packaging capabilities of NVIDIA's main supplier, TSMC, will improve in the first half of this year, allowing NVIDIA to overcome supply bottlenecks and deliver more chips to customers.

"The most important stock on Earth" still faces risks

Goldman Sachs' trading department referred to NVIDIA as "the most important stock on Earth" in a report released on Tuesday. Options positions indicate that the stock price could fluctuate by approximately 11% in either direction. Given NVIDIA's significant weighting in the index and the concentration of long positions, the company could potentially impact the financial markets. As a single company, NVIDIA has contributed one-third of the Nasdaq 100 index's gains so far this year.NVIDIA is currently working hard to expand its AI technology beyond large data center companies. The 61-year-old Jensen Huang has begun a global campaign, advocating that governments and enterprises need to have their own AI systems, both to protect data and to gain a competitive advantage.

Earlier this month, NVIDIA announced an agreement with Cisco to provide a new distribution channel for Cisco. As part of this agreement, the world's largest network equipment provider, Cisco, will help NVIDIA sell complete AI systems to enterprises.

However, some investors are concerned that this massive growth may not be sustainable forever. The media believes that NVIDIA faces risks, including increasing competition and some customers starting to develop their own AI chips. NVIDIA's competitor, AMD, has recently started selling a series of accelerators called MI300, with revenue expected to reach $3.5 billion this year, higher than the previous $2 billion forecast.

Nevertheless, NVIDIA is not standing still, analysts expect the company to soon launch more powerful accelerators. Even with intensifying competition, some analysts estimate that NVIDIA holds about 70% of the total sales of AI chips.

Many analysts believe that NVIDIA still has significant room for development. Some analysts say that NVIDIA's outlook is positive because competition from Intel, AMD, Meta, and Microsoft in AI chip production may take several months, while demand for NVIDIA chips is only increasing.

In addition, the company's gaming business, including graphics card sales for laptops and personal computers, only grew by 56% YoY, reaching $28.7 billion. Meanwhile, NVIDIA's smaller businesses did not show the same astonishing growth, with a 4% decline in revenue from the automotive business, down to $2.81 billion, while its OEM and other businesses, including cryptocurrency chips, grew by 7% to $90 million. Revenue from the business manufacturing graphics hardware for professional applications increased by 105% to $4.63 billion.