Nvidia earnings: Generative AI has reached “tipping point” Nvidia earnings: Generative AI has reached “tipping point” Nvidia earnings: Generative AI has reached “tipping point”

Nvidia earnings: Generative AI has reached “tipping point”

Equities 10 minutes to read
Peter Garnry

Head of Saxo Strats

Key points:

  • Nvidia beat expectations: Revenue grew 265% YoY in Q4 FY24, exceeding analyst estimates. Q1 FY25 guidance is also 10% above consensus.

  • Generative AI seen as key driver: Nvidia's CFO highlighted generative AI as a major growth factor, potentially leading to continued model upgrades and higher returns.

  • High concentration and profitability: One customer accounted for 13% of Nvidia's revenue, and the company boasts a net profit margin of 55.6%, the highest among large tech companies.

  • Market implications: Nvidia's strong results could fuel a rally in AI stocks and the broader tech sector, but also raise concerns about future earnings beats and potential bubble formation.

  • Investment strategies: Investors seeking to reduce exposure to US technology and Nvidia can consider sectors like energy, utilities, and consumer staples, which have low correlation with Nvidia.

Nvidia is almost defying the laws of financial markets

Nvidia earnings last night was this week’s most important event and one we highlighted in our earnings preview on Monday. Despite excessive expectations going into the earnings release Nvidia delivered incredible earnings results. We have never seen anything like this before in the equity market in terms of 265% YoY revenue growth rate for a company expected to report around $100bn in revenue over the next four quarters. It should almost not be possible.

Here are our key takeaways:

  • Solid beat in FY24 Q4 with revenue growing 265% YoY and FY25 Q1 revenue guidance at $24bn is 10% above consensus estimate.

     

  • The CFO comment that generative AI has reached a "tipping point" is the most firm long-term prediction on demand we have got from Nvidia since the generative AI era started. This is the key driver of model upgrades on Nvidia and what drives the higher returns. Nvidia shares are up 13% in pre-market trading.

     

  • One customer represented 13% of revenue in FY24. That is $7.9bn worth of computer chips from a single customer in just one year. Based on Microsoft’s aggressive ramp-up of capital expenditures in the previous quarters our best guess is that it is Microsoft.

     

  • Net profit margin was 55.6% for the quarter. No other company in the technology sector with a market value above $100bn has this kind of net profit margin. It seems that OpenAI co-founder Sam Altman has taken Amazon founder Jeff Bezos’ famous words “your margin is my opportunity” at face value as he is planning to start a chip venture to compete with Nvidia in AI chips.

     

  • Equity sentiment will thrive on this result for weeks to come and we cannot rule out a melt-up scenario in AI related stocks. The broader US technology sector will likely extend its momentum.

     

  • This was the 8 straight earnings beat from Nvidia. It creates a positive feedback loop in expectations which will make it increasingly difficult for Nvidia continuously beat estimates.

As the technology momentum continues investors should begin thinking about reducing exposure to US technology more broadly. Investors that want to be fully invested in equities but taking advantage of recent exceptionally strong gains in US technology can reduce their portfolio risk in an easy way. There are three sectors that have shown a low correlation with Nvidia and those are energy, utilities, and consumer staples. Investors can easily diversify their US technology risk exposure by using ETFs providing exposure to those three sectors.

Out of the 20 stocks in our AI theme list 15 companies have now reported earnings. The last company to report earnings is Adobe which is scheduled to release earnings results on 14 March. The generative AI growth wave and generally business investments coming back in all part of the technology supply chain are showing up in revenue growth rates. As the chart below shows the average revenue growth rate is rebounding for these AI related stocks.

Source: Nvidia
Nvidia share price | Source: Saxo

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.