To The Moon

On August 23, after the US stock market closed, Nvidia $NVIDIA Corp(NVDA)$ , the king of AI, announced the second quarter of the fiscal year 2024 ( results from May 1 to July 30, 2023).

This financial report attracts the world's attention, and it has the power to determine the trend of bulls and bears in the US stock market!

After the results were announced, Nvidia once again amazed the world!

In the second quarter, Nvidia reported revenue of $13.5 billion, compared with analyst expectations of $11 billion. Adjusted net income of $6.7 billion versus analysts' expectations of $5.2 billion:

Nvidia surpassed analysts' expectations in terms of both revenue and net income, with its shares up 10% in after-hours trading:

Specifically, Nvidia's revenue in the second quarter was $13.5 billion, an increase of 101.5% year-on-year, far exceeding the $11 billion revenue guidance given by management in the last quarter!

By business, data center revenue in the second quarter of $10.32 billion, a year-on-year surge of 170.9%, far exceeding analyst expectations of $7.86 billion; Game business revenue of $2.486 billion, an increase of 21.9%, slightly exceeding analyst expectations of $2.378 billion; Automotive chip revenue of $253 million in the second quarter, up 15% year over year, below analyst expectations of $311 million; Professional visualization and other business revenues were smaller and less growing, so I won't talk too much about it here:

From this point of view, the main contributor to Nvidia's explosive performance is the continued explosion of data centers, and the growth of the business is due to the explosion of demand for accelerated computing and generative AI! This is mainly due to accelerating demand from cloud service providers and large Internet companies for Nvidia's HGX platform, an engine for generative AI and large language models.

Major companies including AWS $Amazon.com(AMZN)$ , Google $Alphabet(GOOG)$ $Alphabet(GOOGL)$ Cloud, Meta $Meta Platforms, Inc.(META)$ , Microsoft $Microsoft(MSFT)$ Azure, and Oracle $Oracle(ORCL)$ Cloud, as well as a growing number of GPU cloud vendors, are deploying HGX systems based on Nvidia's Hopper and Ampere architectures Tensor Core Gpus at scale!

The gaming business also improved significantly in the second quarter, with revenue growth returning from the previous sharp decline, mainly driven by the GeForce RTX 40 series GPU for laptops and desktops, and the company believes that global end demand has returned to growth after slowing last year!

Surprisingly, the growth rate of automotive chips was only 15%, significantly lower than the growth rate of 114.5% in the previous quarter, and the quarter fell by 15%.

The company explained this as the decline in car demand in China, but did not explain it in detail. According to the data of the China Association of Automobile Manufacturers, from January to July this year, China's car sales reached 15.65 million, an increase of 7.4%over the same period last year. The domestic sales of new energy vehicles were 3.89 million, an increase of 32.5% year-on-year; New energy vehicles were exported to 636,000 units, up 1.5 times year-on-year.

Nvidia's automotive chips are mainly used in new energy vehicles, so the 15% growth rate seems difficult to explain simply by the decline in Chinese demand.

Although the car chip is slightly flawed, because the revenue scale is very small, it does not prevent Nvidia from making rapid progress!

Under the surge in revenue, Nvidia's profit margin hit a new high, including gross profit margin of 70.1% in the second quarter, a record!

Driven by gross profit margin, Nvidia's net income in the second quarter was $6.74 billion, a year-on-year surge of 422%, and a net income rate of 49.9%!

Nvidia is a money-making machine, and this record is about to be broken in the next quarter. The company expects third-quarter revenue of $16 billion, plus or minus 2%; Gross profit margin will reach 71.5%, another new record!

Analyst estimates for third-quarter revenue is $12.5 billion, and Nvidia once again beat analyst expectations by a wide margin!

Now, looking back at Nvidia's valuation, before the earnings release, the market was worried about the AI bubble, and comparing Nvidia to Cisco during the Internet bubble. However, if you calculate the dynamic price-to-sales ratio valuation, Nvidia is only 15 times, which is not only much lower than the 61 times valuation during the Cisco bubble, but also lower than the average valuation of Nvidia over the past five years. Considering that under the help of AI, Nvidia's profitability has soared. The forward valuation of 15 times is a mockery of the king of AI!

So the key question now is whether Nvidia's demand for GPU is temporary or sustainable.

The problem was repeatedly mentioned by analysts at the earnings meeting. After all, the current AI has just broken out, cloud service providers and Internet companies compete for GPU, and once the GPU demand is met over time, will Nvidia's performance decline significantly?

According to Jen-Hsun Huang, CEO of Nvidia, he thinks the world's $1 trillion data center market is shifting in two directions: accelerated computing and generative artificial intelligence, which he believes is not a short-term thing, but a long-term industry transformation.

Nvidia expects strong demand to continue into next year!

In addition to the strong results, Nvidia also announced a $25 billion buyback, which added fuel to the fire of the skyrocketing stock price!

Since the era of AI, it happens that Nvidia oligopoly has monopolized GPU infrastructure, and the exclusive dividend of Nvidia may create surprising returns!