NVIDIA stock has soared following the fourth-quarter report, with investors hoping for an encore on May 22nd.
The release of the generative artificial intelligence (AI) application ChatGPT sent Wall Street into a frenzy in late 2022.The generative AI revolution is still in its early stages, but chipmakers are Nvidia (NVDA -1.84%) It's already a big winner.
Nvidia is S&P500 This is primarily because interest in AI has driven unprecedented demand for the company's graphics processing units (GPUs). The stock is currently up 510% since the start of 2023, but a tipping point could be just around the corner.
Nvidia will release its first quarter financial results after the market closes on Wednesday, May 22nd at 5pm ET. For context, the stock price soared 16% following an unusual fourth-quarter financial report, and shareholders are no doubt hoping for an encore performance. But Wall Street analysts have particularly high hopes for this one.
Should you buy Nvidia stock by May 22nd?
Nvidia impressed Wall Street with triple-digit growth in Q4
Nvidia shattered expectations with its fourth quarter financial report. Sales rose 265% to $22.1 billion, with particularly strong momentum in the data center product category. This is mainly due to the demand for artificial intelligence systems and software. Also, non-GAAP net income increased 491% to $12.8 billion.
The chart below shows Nvidia's fourth quarter revenue growth across four major product categories.
CEO Jensen Huang said in an earnings call that the company's strong performance in the fourth quarter was due to two platform shifts. Data centers are moving from general-purpose computing to accelerated computing and evolving into generative AI factories that transform vast amounts of raw information into digital intelligence. “The Nvidia AI supercomputer is essentially his AI generation factory for this industrial revolution,” Huang told analysts.
Looking back, Nvidia achieved three consecutive quarters of triple-digit revenue and non-GAAP net income growth, as shown in the chart below.
Wall Street expects stunning first-quarter report from Nvidia
Nvidia expects first-quarter revenue to rise 234% to $24 billion. Management also provided guidance on non-GAAP gross income, operating margin and tax rates, and expects non-GAAP net income to increase approximately 416% to $5.62 per diluted share. Masu.
By comparison, Wall Street consensus is for first-quarter sales to rise 240% to $24.5 billion and non-GAAP net income to rise 409% to $5.55 per diluted share. Analysts also expect second-quarter sales to rise 96% to $26.5 billion and non-GAAP net income to rise 119% to $5.91 per diluted share.
Nvidia has reported better-than-expected results in each of the past four quarters, and also provided guidance well above Wall Street consensus in the fourth quarter. If this time it's lower than that, the stock price could fall. Alternatively, if Nvidia beats expectations and beats consensus, the stock could soar.
Nvidia has a strong presence in various areas of the AI economy
Nvidia's bullish case is based on its unique position in the AI economy. The company's graphics processing units (GPUs) are the gold standard for accelerating complex data center workloads such as AI applications. According to analysts, Nvidia holds an 80% to 95% market share for AI chips. However, the company is also establishing itself in other product categories.
For example, Nvidia recently introduced data center central processing units (CPUs). In the third quarter, CEO Jensen Huang told analysts, “We are rapidly growing our first data center CPU into a multi-billion dollar product line.'' “There is,” he said. Additionally, high-performance networking equipment became his $10 billion business for Nvidia, whose nascent software and services offerings achieved an annual revenue run rate of $1 billion in the fourth quarter.
In other words, Nvidia is a one-stop shop for artificial intelligence. goldman sachs Analyst Toshiya Hari sees this as an important differentiating factor. In a recent note to clients, he wrote:
We believe Nvidia will remain the de facto industry standard for some time given its competitive advantages across hardware and software capabilities. Nvidia sets the pace of innovation by introducing new products and platforms every year, keeping us at the forefront of the industry.
Nvidia stock looks expensive, so investors should be cautious
The graphics processor market is expected to grow 28% annually through 2030, and AI spending across hardware, software, and services is expected to grow 37% annually over the same period. With this, Nvidia is expected to increase annual profits by about 30% until the end of his 20s.
Wall Street expects the company to grow its earnings per share by 35% annually over the next three to five years. In that context, the current stock valuation of 74x P/E looks expensive.
Personally, I would wait until the multiple is cheaper, but investors looking to buy stocks today should start with a very small position. Expectations surrounding the company's first quarter earnings are extremely high, and it's very likely that the stock will fall sharply following this report.
If that happens, patient investors should consider buying a larger position in NVIDIA at that point. Even if that doesn't happen, many other companies will be well-positioned to benefit from the AI boom.