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Category: Stock Market and Nvidia
Date: 25 May 2020 Stock Price: $361.05 We take a look at the 1st quarter earnings release of their 2021 fiscal year of parallel computing and graphics card maker, Nvidia. We believe the stock is still trading at well above its fair value price.
Our Data Center business achieved a record and its first $1 billion quarter. NVIDIA is well positioned to advance the most powerful technology forces of our time – cloud computing and AI" |
About Nvidia
NVIDIA’s (NASDAQ: NVDA) invention of the GPU in 1999 sparked the growth of the PC gaming market, redefined modern computer graphics and revolutionized parallel computing. More recently, GPU deep learning ignited modern AI ― the next era of computing ― with the GPU acting as the brain of computers, robots and self-driving cars that can perceive and understand the world
Overview of Nvidia's 1st quarter 2021 earnings report
The numbers we are interested in (for the quarter):
- Total revenue: $3.080 billion up from $2.220 billion from the same quarter of the previous year)
- Revenues increased by 38.7% over the last 12 months
- Cost of revenues: $1.076 billion (up from $924 million for the same quarter of the previous year)
- Cost of revenues increased by 16.4% over the last 12 months
- Some margin expansion for Nvidia as their revenues increased at a faster pace than their cost of revenues
- Net income: $917 million (up from $394 million for the same quarter of the previous year)
- Diluted earnings per share: $1.47 (up from $0.64 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 622 million (up from 616 million for the same quarter of the previous year)
- Cash and cash equivalents: $16.354 billion
- Cash and cash equivalents per share: $26.29
- Cash and cash equivalents makes up 7.3% of Nvidia's market capital
- Cash and cash equivalents makes up 70.3% of Nvidia's total assets
- Accounts receivable: $1.907 billion
- Accounts receivable makes up 8.2% of Nvidia's total assets
- Inventories: $1.128 billion
- Inventories makes up 4.8% of Nvidia's total assets
- Shareholders equity in Nvidia: $13.099 billion
- Shareholders equity per Nvidia share: $21.05
- Nvidia is trading at 17.2 times its shareholders equity. The number is relatively high considering that most firms tend to trade at between 2 and 4 times their shareholders equity
- For some perspective the average price to book value of firms in the S&P 500 is 3.7 Read more about the S&P 500 here.
- Cash generated from operations: $909 million
- Cash generated from operations per share: $1.46
Nvidia's management commentary on their 1st quarter 2021 earnings
NVIDIA today reported revenue for the first quarter ended April 26, 2020, of $3.08 billion, up 39 percent from $2.22 billion a year earlier, and down 1 percent from $3.11 billion in the previous quarter.
NVIDIA completed its acquisition of Mellanox Technologies Ltd. on April 27, 2020, for a transaction value of $7 billion. It also transitioned its GPU Technology Conference to an all-digital format, drawing more than 55,000 registered participants, while NVIDIA founder and CEO Jensen Huang’s keynote videos were viewed 3.8 million times in their first three days.
“As the world battles COVID-19, we salute the first responders, healthcare workers, and service workers who courageously step in harm’s way to save lives and keep the world going,” Huang said. “We also thank the scientists around the world racing to find a vaccine for COVID-19. “NVIDIA had an excellent quarter. The acquisition of Mellanox expands our cloud and data center opportunity. We raised the bar for AI computing with the launch and shipment of our Ampere GPU. And our digital GTC conference attracted a record number of developers, highlighting the accelerating adoption of NVIDIA GPU computing. “Our Data Center business achieved a record and its first $1 billion quarter. NVIDIA is well positioned to advance the most powerful technology forces of our time – cloud computing and AI,” he said.
NVIDIA completed its acquisition of Mellanox Technologies Ltd. on April 27, 2020, for a transaction value of $7 billion. It also transitioned its GPU Technology Conference to an all-digital format, drawing more than 55,000 registered participants, while NVIDIA founder and CEO Jensen Huang’s keynote videos were viewed 3.8 million times in their first three days.
“As the world battles COVID-19, we salute the first responders, healthcare workers, and service workers who courageously step in harm’s way to save lives and keep the world going,” Huang said. “We also thank the scientists around the world racing to find a vaccine for COVID-19. “NVIDIA had an excellent quarter. The acquisition of Mellanox expands our cloud and data center opportunity. We raised the bar for AI computing with the launch and shipment of our Ampere GPU. And our digital GTC conference attracted a record number of developers, highlighting the accelerating adoption of NVIDIA GPU computing. “Our Data Center business achieved a record and its first $1 billion quarter. NVIDIA is well positioned to advance the most powerful technology forces of our time – cloud computing and AI,” he said.
In the first quarter of fiscal 2021, NVIDIA paid dividends of $98 million. Due to current market uncertainties, NVIDIA is evaluating the timing of resuming share repurchases and will remain nimble based on market conditions. NVIDIA is currently authorized to repurchase up to $7.24 billion in shares through December 2022. It remains committed to paying its quarterly dividend.
NVIDIA’s outlook for the second quarter of fiscal 2021 includes the impact from the acquisition of Mellanox, which closed on the first day of the second quarter. The combined second quarter outlook is as follows:
NVIDIA’s outlook for the second quarter of fiscal 2021 includes the impact from the acquisition of Mellanox, which closed on the first day of the second quarter. The combined second quarter outlook is as follows:
- Revenue is expected to be $3.65 billion, plus or minus 2 percent. Mellanox is expected to contribute a low-teens percentage of combined second quarter revenue.
- GAAP and non-GAAP gross margins are expected to be 58.6 percent and 66.0 percent, respectively, plus or minus 50 basis points. The sequential decline in GAAP gross margins primarily reflects an increase in acquisition-related costs, most of which are non-recurring in nature.
- GAAP and non-GAAP operating expenses are expected to be approximately $1.52 billion and $1.04 billion, respectively. The sequential change in GAAP operating expenses reflects an increase in stock-based compensation and acquisition-related costs. GAAP and non-GAAP operating expenses for the full year, which will include Mellanox starting with the second quarter, are expected at approximately $5.7 billion and $4.1 billion, respectively.
- GAAP and non-GAAP other income and expense are expected to be an expense of approximately $50 million and $45 million, respectively.
- GAAP and non-GAAP tax rates are both expected to be 9 percent, plus or minus 1 percent, excluding any discrete items. GAAP discrete items include excess tax benefits or deficiencies related to stock-based compensation, which are expected to generate variability on a quarter by quarter basis.
Nvidia (NASDAQ: NVDA) stock price history
The image below shows the stock price history of Nvidia (NASDAQ: NVDA) for the last 5 years. And its been a excellent 5 years for stockholders of Nvidia. 5 years ago the stock was trading around $22.30 and its currently trading at $270.78. Thats a massive 1 519% return provided by Nvidia stock over the last 5 years.
The stock of Nvidia is currently trading at a lot closer to its 52 week high of $363.72 than it is to its 52 week low of $132.60 which to us is a clear indication that the short term sentiment and momentum of Nvidia's stock is very positive at this point in time.
The stock of Nvidia is currently trading at a lot closer to its 52 week high of $363.72 than it is to its 52 week low of $132.60 which to us is a clear indication that the short term sentiment and momentum of Nvidia's stock is very positive at this point in time.
Recent Google search trends for Nvidia stock price and NVDA stock price
The graphic below shows google search trends for Nvidia stock price and NVDA stock price over the last 12 months in the United States as obtained from Google Trends. It shows the number of searches for both these search queries are pretty similar and that there is consistent interest in the stock price of Nvidia. There was a spike in interest for Nvidia in early March 2020, which coincided with a sell off in the group's stock price due to global market sell offs triggered by the coronavirus.
Nvidia (NASDAQ: NVDA) stock vs AMD (NASDAQ: AMD) stock
The image below shows the stock price performance of Nvidia (NVDA) and AMD (AMD) stock over the last 3 years. And the stock of AMD has easily outperformed the stock of Nvidia over the three year period, with AMD stock increasing 345.64% over three year period while Nvidia stock returned 142.12% over the same time period. So if you had to pick between these two semiconductor stocks we hope you picked AMD.
Recent coverage of Nvidia (NASDAQ:NVDA)
The extract below shows recent coverage of Nvidia as obtained from Marketwatch.com
Nvidia Corp. shares rallied Friday, as the company’s latest earnings report showed continued strength in its data-center business even as other areas have been impacted more heavily by the COVID-19 crisis. Nvidia’s NVDA, +2.86% results “suggest another extremely strong data-center outlook,” wrote Bernstein analyst Stacy Rasgon, as the company “implicitly guided [segment revenues] somewhere in the ballpark of ~$1.3 billion” for the fiscal second quarter, excluding the recent Mellanox acquisition. That means the data-center business could be “seemingly up another 10-15% sequentially,” he wrote, as Nvidia’s management indicated it has good visibility into the July quarter.
The data-center segment generated $1.14 billion in quarterly revenue for the April quarter, up from $634 million a year ago. This marked the first quarter in which the segment exceeded $1 billion in sales. “While the shares remain expensive, there are frankly few true growth stories in semiconductors these days, and even fewer with Nvidia’s current execution,” Rasgon wrote. “And even if expensive we see no rationale to sell here, given product cycles on the way and a profile that continues its awakening toward a true accelerated computing company with every passing quarter.”
Rasgon rates the stock at outperform and raised his price target to $415 from $360. The stock surged 1.8% in morning trading, to trade just shy of the May 20 record close of $358.80. Cowen & Co. analyst Matthew Ramsay said that Nvidia reported “stellar results that live up to a stellar Ampere launch” and cleared a high bar. He said that early Ampere shipments helped contribute to the strong data-center results and was encou
Read the full article here
Nvidia Corp. shares rallied Friday, as the company’s latest earnings report showed continued strength in its data-center business even as other areas have been impacted more heavily by the COVID-19 crisis. Nvidia’s NVDA, +2.86% results “suggest another extremely strong data-center outlook,” wrote Bernstein analyst Stacy Rasgon, as the company “implicitly guided [segment revenues] somewhere in the ballpark of ~$1.3 billion” for the fiscal second quarter, excluding the recent Mellanox acquisition. That means the data-center business could be “seemingly up another 10-15% sequentially,” he wrote, as Nvidia’s management indicated it has good visibility into the July quarter.
The data-center segment generated $1.14 billion in quarterly revenue for the April quarter, up from $634 million a year ago. This marked the first quarter in which the segment exceeded $1 billion in sales. “While the shares remain expensive, there are frankly few true growth stories in semiconductors these days, and even fewer with Nvidia’s current execution,” Rasgon wrote. “And even if expensive we see no rationale to sell here, given product cycles on the way and a profile that continues its awakening toward a true accelerated computing company with every passing quarter.”
Rasgon rates the stock at outperform and raised his price target to $415 from $360. The stock surged 1.8% in morning trading, to trade just shy of the May 20 record close of $358.80. Cowen & Co. analyst Matthew Ramsay said that Nvidia reported “stellar results that live up to a stellar Ampere launch” and cleared a high bar. He said that early Ampere shipments helped contribute to the strong data-center results and was encou
Read the full article here
Nvidia (NASDAQ: NVDA) latest stock valuation
So based on their 1st quarter 2020 earnings report of Nvidia (NASDAQ: NVDA) what do we value Nvidia stock at? Based on the earnings reported our valuation model provides a target price (full value price) for Nvidia at $187.40 a stock (up slightly from our 4th quarter 2020 earnings report valuation of Nvidia)
We therefore feel that the stock is overvalued and we would not recommend long term fundamental or value investors buy into the stock right now. We usually suggest that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $187.40. A good entry point into the stock of Nvidia would therefore be at $168.70or below.
Since the stock of Nvidia is trading at well above our suggested entry point into the stock we rate them as AVOID at its current price
We therefore feel that the stock is overvalued and we would not recommend long term fundamental or value investors buy into the stock right now. We usually suggest that long term fundamental or value investors look to enter a stock at least 10% below our target price which in this case is $187.40. A good entry point into the stock of Nvidia would therefore be at $168.70or below.
Since the stock of Nvidia is trading at well above our suggested entry point into the stock we rate them as AVOID at its current price
Next earnings release of Nvidia
It is expected that Nvidia will release their 2nd quarter 2021 earnings report towards the end of August 2020