Nvidia earnings: Generative AI has reached “tipping point”

10 minutes to read
Peter Garnry

Chief Investment Strategist

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

Quarterly Outlook 2024 Q4

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Head of FX Strategy

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Head of FX Strategy

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

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)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.