Nvidia Beats Q3 Earnings — Should You Buy?

NVIDIA Corporation (NASDAQ:NVDA) has unveiled its third-quarter earnings for fiscal year 2024, delivering a performance that not only surpassed expectations but also marked significant milestones in its growth trajectory. The report reveals a remarkable surge in revenue and earnings, bolstered by robust demand in data center operations and groundbreaking advancements in AI and gaming technologies.

However, the market’s response to the solid earnings report has been muted so far, signaling that upside potential for NVDA stock may be limited in the short term.

Earnings Overview:

Key Highlights:

• Q3 Revenue: $18.12 billion (up 206% year-over-year), exceeding the $16.19 billion expectation.

• Non-GAAP EPS: $4.02 (up 593% year-over-year), surpassing the $3.37 forecast.

• Data Center Revenue: A record $14.51 billion, up 279% year-over-year.

• Gaming Revenue: Up 81% from the previous year.

• Cash Flow: Operating cash flow increased dramatically, from $392 million to $7.33 billion, driven by higher revenue and partially offset by higher tax payments.

• Gross Margin: NVDA’s gross margin increased from 53.6% last year to 74% in Q3.

The earnings per share (EPS) of $4.02, significantly higher than the expected $3.37, reflects NVIDIA's operational excellence and its ability to exceed market expectations. The remarkable revenue growth, particularly in the data center segment, highlights NVIDIA's expanding footprint in high-performance computing and AI applications.

Looking at Its Segments

Data Center: The record-setting data center revenue, driven by global demand for NVIDIA's HGX platform and strong sales in large language model training, recommendation engines, and generative AI applications, underscores NVIDIA's leadership in these cutting-edge technologies.

Gaming: The substantial 81% year-over-year growth in gaming revenue can be attributed to strong demand for GeForce RTX 40 Series GPUs, signaling NVIDIA's continued dominance in the gaming sector.

Professional Visualization and Automotive: These segments showed healthy growth, with professional visualization revenue up 108% year-over-year, driven by enterprise demand and notebook workstations.

Q4 Outlook

Revenue of $20.00 billion, +/- 2%.

GAAP and non-GAAP gross margins of 74.5% and 75.5%, respectively, +/- 50 basis points.

GAAP, non-GAAP operating expenses of approximately $3.17 billion and $2.20 billion, respectively.

GAAP and non-GAAP other income and expense are expected to be an income of ~$200M, excluding gains and losses from “non-affiliated investments.” GAAP and non-GAAP tax rates of 15.0%, plus or minus 1%, excluding any discrete items.

Our Take on NVDA’s Results. It’s Not All Sunshines and Rainbows

NVIDIA's Q3 fiscal 2024 results undoubtedly reflect a company at the vanguard of technological innovation, particularly in AI and accelerated computing. With record revenues and strategic advancements, NVDA is a compelling company.

HOWEVER, the stock’s valuation is high, as most investors are already aware. There’s a problem here: the stock is slightly down after hours (currently down 1%) despite a big earnings beat. So, if a big earnings beat can’t help NVDA stock rise, then what can? NVDA has beaten earnings in the past 4 quarters in a row, and the stock is up about 250% year-to-date, so investors have come to expect crazy results from the company.

Here’s the issue with that: this means that if NVDA ever disappoints the market even slightly with its next earnings report, it can see a huge drop in value overnight. That’s a risk investors should be aware of with a stock trading at around 63x non-GAAP earnings (when factoring in the most recent results and the 1% drop).

The takeaway? Nvidia is great, but be careful buying up here.