Nvidia Q1 Earnings To Test Chipmaker’s Lofty Valuations

Nvidia (NVDA), the world’s most valuable chipmaker, is expected to say revenue and net income shrank by as much as a fifth last quarter, putting its stock’s 100% rally so far this year to the test.

Key Takeaways

  • Net income is expected to drop from $1.61 billion to $1.48 billion year-on-year.
  • Analysts are concerned the company’s valuation is too high.
  • Artificial intelligence has been a big factor in the stock’s rally.

Nvidia likely will say net income fell more than 8% year-over-year to $1.48 billion, or 93 cents a share, according to analyst estimates compiled by Visible Alpha. Revenue is expected to slump by 21%, its largest contraction since 2019.

Nvidia’s data center business could be a bright spot, with revenue projected to grow 3% to $3.88 billion. Nvidia will report its first-quarter earnings results after markets close Wednesday.

Nvidia Key Stats
   Q1 FY 2024 (est.) Q1 FY 2023 Q1 FY 2022
Adjusted Earnings Per Share ($) 0.93 1.36 0.91
 Revenue ($B)  6.51 8.28 5.66
 Revenue – Data Center ($B)  3.88 3.75 2.05

Nvidia is widely seen as a leading chipmaker for supercomputing and AI applications, a view that has helped fuel its stock’s 115% rise so far this year. OpenAI’s ChatGPT, the chatbot that set Big Tech’s AI arms race in motion, was trained with Nvidia graphics processing units (GPUs), and the company is estimated to have about 90% market share in data center processing.

CEO Jensen Huang said in March that the company has seen “an acceleration in demand” for its AI-related products. The company, a leader in developing GPUs, is reportedly working with U.K. researchers to build a supercomputer powered by its own central processing unit (CPU), putting it in direct competition with other CPU makers Advanced Micro Devices (AMD) and Intel Corp (INTC).

The chipmaker’s future may look good on these developments but some analysts are concerned about its valuation. Nvidia trades at a forward price-earnings ratio of 179 times—with a five-year average of 64 times—which could limit the stock’s near-term upside.

“Nvidia is trading on heroic valuations which time will tell if they are justified,” said Deutsche Bank’s Jim Reid in an analyst note Monday.

Nvidia shares have handily outperformed the S&P 500 and the S&P 500 Information Technology Sector, up 9% and 25.5%, respectively this calendar year.

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