Investing

Nvidia (NVDA) Must Wonder What It Needs To Do To Satisfy Shareholders

Paul Ausick

Published: November 22, 2023 10:18 am

After U.S. markets closed Tuesday, Nvidia Corp. (NASDAQ: NVDA) reported third-quarter earnings that not only beat ‌consensus estimates but both EPS and revenue closed well above the high estimates. Needless to say, investors took profits because why not? Nvidia stock may go to hell in a handbasket any day now, right?

Nvidia’s numbers

EPS came in at $4.02, beating the consensus estimate of $3.39 by 18.6%. On the top line, Nvidia reported revenue of $18.12 billion, 12.5% higher than the consensus, 34% higher sequentially,‌ and 206% higher year over year.

Adjusted gross margin rose sequentially from 71.2% to 75% and year over year from 56.1%. Adjusted net income rose 49% sequentially and 588% year over year to $10.020.

About that handbasket. Nvidia’s fourth-quarter outlook is decidedly upbeat:

• Revenue: $20 billion, +/- 2%
• Adjusted gross margin: 75.5%, +/- 50 basis points
• Adjusted operating expenses: $2.2 billion, up 6% sequentially and 13% y/y

In its data center segment, Nvidia reported revenue of $14.51 billion, up 41% sequentially and 279% year over year. Gaming segment revenue rose 15% sequentially and 81% year over year to $2.86 billion.

Operating cash flow totaled $7.33 billion, up from $392 million a year ago and $6.35 billion in the prior quarter.

Nvidia reported cash and other liquidity of $18.28 billion, up by about $2.25 billion sequentially and by more than $5 billion compared to the third quarter of last year.

Export restrictions

Regarding the U.S. government’s recent tightening of restrictions on exports of some high-performance products, Nvidia CFO Collette Kress commented:

These licensing requirements did not have a meaningful impact on our revenue in the third quarter of fiscal 2024 as they were announced near the end of the fiscal quarter and we had additional demand from customers outside of the named country groups. Our sales to China and other affected destinations, derived from products that are now subject to licensing requirements, have consistently contributed approximately 20-25% of Data Center revenue over the past few quarters. We expect that our sales to these destinations will decline significantly in the fourth quarter of fiscal 2024, though we believe the decline will be more than offset by strong growth in other regions.

Maybe it’s that last sentence that cooled investors’ enthusiasm for Nvidia stock. Maybe they stopped reading after reaching “decline significantly” and didn’t get to the bit about “more than offset by strong growth in other regions.”

Nvidia stock traded down by nearly 2% in Wednesday’s premarket session. The stock has since recovered and traded down by around 0.2% at $498.80  shortly after the opening bell. The stock’s 52-week range is $138.84 to $505.48. Nvidia’s annual dividend of $0.16 adds 0.03% to an investor’s annual return.