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NVIDIA - Q1 results, numbers and outlook ahead of expectations

NVIDIA saw first quarter revenues down 13% to $7.2m. The largest segment, Data Center, saw sales grow by 14%.

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NVIDIA saw first quarter revenues down 13% to $7.2m. The largest segment, Data Center, saw sales grow by 14%. CEO Jensen Huang called out a need for these products to "transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process."

However, the increase was not enough to offset respective falls of 38% and 53% in Gaming and professional Visualisation.

Despite the fall in revenues, operating profit was up by 15% reflecting a 30% reduction in operating expenses. Both earnings and revenues were ahead of expectations.

Free cash flow nearly doubled to $2.6bn and NVIDIA ended the quarter with net debt of £4.4bn.The Company intends to pay out a quarterly dividend of 4 cents per share in June.

Guidance for the second quarter is looking for revenues of about $11bn, some 36% above consensus forecasts.

The shares were up 22.7% in today's pre-market trading.

View the latest NVIDIA share price and how to deal

Our view

NVIDIA is set to return to growth with a bang in the current quarter, with sales expected to rise by close to 70%, reflecting a steep increase in demand for data center products and services related to generative AI (Artificial Intelligence) and large language models such as Chat GPT. ChatGPT runs on NVIDIA chips, 10,000 of which were used to train the programme to converse with its users, write content, and even computer programs.

These chips are the backbone of NVIDIA's business model, and their advanced capabilities allow NVIDIA to earn higher margins than chip companies with a greater bias towards consumer electronics. But there's also a software element to the AI story. NVIDIA's enterprise software accelerates the development of AI applications, as well as offering off the shelf 'pretrained' models. Software revenues are currently small, but we see this as an opportunity to increase recurring revenues and further improve profitability.

CEO Jensen Huang sees the recent breakthroughs in AI as an inflection point for broad adoption across every industry, and he may well be right. We're impressed at NVIDIA's efforts to position itself as a key enabler of AI adoption and development. The likes of META, Amazon, Alphabet and Microsoft have been making big promises about their intentions to integrate AI into their offerings. They're all customers.

We see NVIDIA as a frontrunner to capitalise on the AI frenzy, and don't think the step change in growth will be a flash in the pan, though there can be no guarantees

Whilst AI is the area management are shouting loudest about, hyper growth also brings with it challenges. Not least of which is pressure on supply chains. NVIDIA should be able to handle this for now, but it's something to look out for.

Another concern is the escalation of tension between Washington and Beijing over semiconductor exports in both directions. Meanwhile in gaming, the industry on which NVIDIA's ultrafast computing architecture was built, is still being impacted by a challenging consumer environment.

With a valuation now well above the long term average the market certainly seems to share NVIDIA's renewed optimism. There's plenty to be excited about but we see the current valuation as rather forward looking, and with that in mind there's pressure to deliver high growth on a consistent basis. Whilst fears of a global recession remain elevated there could be more volatility to come. Meanwhile, the rapidly evolving nature of AI means customer preferences could ebb and flow regardless of the economic environment.

NVIDIA key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 25th May 2023