Nvidia Posts a Blowout Quarter. So What Am I Waiting For?
This report is one of the best I've seen in my years of investing, but that doesn't mean I'm ready to pull the trigger. Let's dig in.
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High-end chip designer and AI bellwether Nvidia (NVDA) finally released fiscal fourth-quarter financial results on Wednesday evening. The report landed long after all of the other mega-cap and Magnificent Seven stock names had revealed their earnings. For the period ended Jan. 25, Nvidia posted an adjusted earnings per share of $1.62 (unadjusted EPS: $1.76) on revenue of $68.127 billion. The top-line print beat Wall Street by nearly $2 billion, while sporting year-over-year growth of 73.2%. The adjusted bottom-line number beat the street, while the unadjusted EPS number easily beat Wall Street as well. The sales print was indeed a new record for any single quarter in Nvidia's history.
“Computing demand is growing exponentially — the agentic AI inflection point has arrived," said founder and CEO Jensen Huang in the release. "Grace Blackwell with NVLink is the king of inference today — delivering an order-of-magnitude lower cost per token — and Vera Rubin will extend that leadership even further. Enterprise adoption of agents is skyrocketing. Our customers are racing to invest in AI compute — the factories powering the AI industrial revolution and their future growth.”
Understand that the muted-to-slightly positive market reaction has little to do with this earnings release. The quarterly results released by Nvidia last night are among the strongest I have seen in my many decades-long career. If there is a slowdown in AI-focused capital spending on the horizon, companies like Nvidia and its closest, but still distant, competitor, Advanced Micro Devices (AMD) are not seeing it.
Operations
While revenue soared 73.2% to $68.127 billion, the cost of that revenue increased 60.6% to $17.034 billion. This left a gross profit of $51.093 billion (+77.9%) as gross margin expanded from 73.4% to 75%. Adjusted gross margin improved from 73.6% to 75.2%. Unadjusted operating expenses grew 45% to $6.794 billion, leaving unadjusted operating income of $44.299 billion (+84%). Once adjusted, operating expenses grew 21% to $5.102 billion and operating income grew 22% to $46.107 billion.
After factoring in interest, other income & expenses and taxes, unadjusted net income printed at $42.96 billion (+35%), which works out to $1.76 per fully diluted share. That's up from the year- ago comparison of $1.30. After adjustments, net income landed at $39.552 billion (+25%. This works out to $1.62 per fully diluted share, up from $1.30 one year ago.
The lion's share of the adjustments made were easily made for the purpose of stock-based compensation. Nvidia announced that starting with the current quarter, it will be putting on its big boy pants and will no longer adjust for stock-based compensation. I applaud that move as this is something that I have long encouraged mature companies who regularly attract talent in this way to do. If you've been around for years and this is an every-quarter item, then it is ordinary. It is an operating expense. Why would one adjust for something one does every single quarter, for decades?
On China
CFO Colette Kress commented on the situation with making sales to Chinese clientele on the earnings call.
"We do not know whether any imports will be allowed into China," said Kress. "Our competitors in China, bolstered by recent IPOs, are making progress and have the potential to disrupt the structure of the global AI industry over the long term. To sustain its leadership position in AI compute, America must engage every developer and be the platform for choice for every commercial business, including those in China." Nvidia did not include any China data center revenue in its current sales outlook.
Segment Sales Performance
- Data Center generated revenue of $62.314 billion (+75%), easily beating expectations and up from $35.58B for the year-ago comp.
- Gaming generated revenue of $3.727 billion (+47%), falling short of expectations, but up from $2.544 billion for the year-ago comp.
- Professional Visualization generated revenue of $1.321 billion (+159%), crushing expectations and up from $511 million for the year-ago comp.
- Automotive generated revenue of $604 million (+6%), slightly missing expectations and up from $570 million for the year-ago comp.
- OEM & Other... generated revenue of $161 million (+28%), missing expectations, but up from $126 million for the year-ago comp.
Guidance
For the current quarter, Nvidia is projecting revenue of $78 billion give or take 2%. This is far better than the $72 billion or so that Wall Street was looking for. The firm sees unadjusted and adjusted gross margin of 74.9% and 75% respectively and operating expenses of $7.7 billion (GAAP) or $7.5 billion (adjusted).
Fundamentals
For the period reported, Nvidia generated operating cash flow of $36.19 billion. Out of that came capital spending of $1.284 billion and $4 million worth of principal payments. That left free cash flow of $34.902 billion (+124.9%, not a misprint). Out of that number came share repurchases worth $3.815 billion and cash dividend payments of $243 million. These cash flow numbers are staggering.
Turning to the balance sheet, Nvidia ended the quarter with a cash position of $62.556 billion and inventories of $21.403 billion. That makes for current assets of $125.605 billion. Current liabilities add up to $32.163 billion, which includes just $999 million in short-term debt. That puts the current and quick ratios at 3.91 and 3.24 respectively, which is more than healthy.
Total assets amount to $206.803 billion. This does include $24.138 billion in goodwill and other intangibles. At less than 12% of total assets, this is of no concern whatsoever. Total liabilities less equity comes to $49.51 billion, including just $7.469 billion in long-term debt. The company could take care of that out of pocket more than eight times over. This is one fortress-like balance sheet.
My Take
For those who missed it, in the company's Form 10-K filing, Nvidia confirmed that it was "finalizing" its deal with, and investment in, OpenAI. The exact verbiage goes, “We are finalizing an investment and partnership agreement with OpenAI. There is no assurance that we will enter into an investment and partnership agreement with OpenAI or that a transaction will be completed.”
This is truly one of the greatest earnings releases in corporate history. Cash flows are just incredible. The balance sheet is in excellent shape. The guidance is strong, even without China. So, do we buy the stock here? Tough question. I am long a few shares. Nvidia is currently a Top 10 holding of mine, but it's literally No. 10, so I'm in, but not all in, if you catch my drift.
Readers will see that NVDA is trying to break out past the $194 pivot created by the quite visible Triple Bottom pattern of bullish reversal. Should this pivot be taken and held, long positions can be added to. Otherwise, I would not want to add just below a pivot that turns out to be resistant. Patience.
My Strategy for Nvidia
Target Price: $240
Pivot: $194
Add: between the 50-day SMA and the 200-day SMA.
Loss of the 200-day SMA.
At the time of publication, Guilfoyle was long NVDA, AMD equity.
