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NVIDIA 1Q numbers - beating expectations

For a second, imagine a world in a decades time. For reference point, cast your mind back ten years in order to appreciate how quickly "things" can change. Whilst Amazon were working on their cloud business in 2007 and Apple was about to launch the first ever iPhone, internet speeds were slow and laptops needed only so much. The thought of electric driverless vehicles in 2007 and the thought of streaming music, content streaming, original content from anyone who wasn't an established participant was a little far fetched.

A trip to Mars? OK, perhaps that is still far away. It was all subprime mortgage talk this time ten years ago, a Blackberry was cooler than any Nokia you had, Samsung and Apple were a twinkle. Yes. Tesla had not even released the (ugly in my opinion) roadster. The Dow Jones was at 13250 odd points. BTW it is 58 percent higher now, than it was back then. Fast forward to today, and we are talking about artificial intelligence, the cloud, storage and streaming are all second nature to us, and the hardware we have is all pretty amazing if not incrementally obsolete on a daily basis (you know what I mean).

Try and now imagine a future in ten years where more electric autonomous vehicles operate in a fleet type mode (i.e. anyone can be a "taxi" owner), there is more cloud related activity (sorry Seagate and friends, they are going to provide to the huge cloud infrastructure) and more machines doing low grade work, from cleaning to heating/cooling. More machines doing high grade work too, from surgery to transportation and delivery of goods. There will always be winners and losers in this type of scenario, hardware providers are going to have to evolve. Some will be left behind for obvious reasons. There will always be the Blackberrys of the world.

One such company that is at the cutting edge of the future is chip maker NVIDIA. Whilst the company has been entrenched in the gaming market for years, more recently their application for Data Centers and Artificial Intelligence have started to come to the fore. Coupled with growth businesses like their original and core gaming business, as well as the associated virtual reality market, the company is well placed. And then of course, driverless cars are going to benefit from the incredible chips that NVIDIA produce.

The company reported numbers after-hours, revenues grew 48 percent when compared to the corresponding quarter. The biggest surprise was that Datacenter revenues grew 186 percent, and now represents one-fifth of the business. Gaming is still the "big daddy", accounting for 1.027 billion Dollars of the groups 1.937 billion in revenues. Automotive revenues grew by 24 percent (Tesla is of course a user of their technologies, see Partner Innovations > Tesla).

The company also provided guidance for a similar quarter to the last reported, in terms of revenues and all the other metrics, a slight softening of gross margins on the current quarter, above last year though. The market liked what they saw, in the aftermarket (post the close) the stock is trading 10 and a half percent higher. Expectations are for the company to make around 3.5 Dollars worth of earnings per share this year, which means at the opening price (suggested) the stock trades on 32 times earnings. That is expensive, the market have this right though, you may well at the likely trajectory of revenues (expected) be paying mid teen digits here, if you are going to hold for at least three to five years.

This is truly an exciting business. This is truly an exciting world changing industry, much of the AI, VR (that is artificial intelligence and Virtual Reality to you and I), driverless tech and gaming advances will come from this company (and of course their peers). They are in the sweet spot of growth globally in computing, and we continue to add the stock on weakness. Expect a bumpy ride, a stock that has done well, may suffer from bouts of weakness (as seen recently) as well as increased competition. This is one to watch closely.


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