Opening: NVIDIA remains severely undervalued in the semiconductor sector, with the Arm acquisition overhang too large.
In yesterday's "Earnings Preview" article, we noted that with Intel and AMD earnings foreshadowing and the company's own raised guidance confirming, AI king NVIDIA's Q1 earnings beat was a foregone conclusion. The results bore that out.
Previous guidance called for $5.3B in revenue, up 72% year over year. Given strength in gaming and data center, we believed a sequential double-digit increase was likely, with Q1 revenue potentially challenging the $6B mark, implying 95% year-over-year growth. The actual result was $5.661B, up 84% year over year; although it did not breach $6B, this is already the strongest Q1 earnings among all semiconductor companies.
NVIDIA Q1 Earnings Summary:
Revenue $5.661B, up 84% year over year, up 13% sequentially, marking the fourth consecutive quarter of record highs!
GAAP gross margin 64.1%, non-GAAP gross margin 66.2%, at historical highs, placing it in the top tier among all semiconductors.
GAAP net income $1.912B, up 109% year over year, up 31% sequentially, marking the third consecutive quarter of record highs!
Non-GAAP net income $2.313B, up 18% year over year, up 18% sequentially, marking the fourth consecutive quarter of record highs!
Notebooks drive gaming and professional visualization to records
NVIDIA Q1 gaming revenue was $2.76B, up 106% year over year, up 11% sequentially, consistent with our prior expectation of sequential double-digit growth, marking the third consecutive quarter of record highs!
Our previous judgments were also validated:
1. Given explosive global PC demand, Intel and AMD Q1 notebook CPU businesses continued to surge, and RTX 30 series notebook new products shipped in volume, driving NVIDIA notebook revenue to a new record. (NVIDIA currently holds a near-monopoly in the notebook discrete GPU market)
2. Nintendo Switch Q1 shipments far exceeded expectations, nearly doubling Nintendo's own guidance.
3. Mining demand is strong, but revenue contribution is hard to quantify; later hash-rate limits on new cards will keep the share very small. (CMP mining cards are not booked to gaming but appear in OEM & IP)
Notably, the standout notebook business also propelled professional visualization to a record $372M in revenue.
AI surges, data center posts sixth consecutive quarter of records
AI king NVIDIA's Q1 data center revenue was $2.048B; although it did not exceed 100% year-over-year growth as we projected yesterday, it still grew 80% year over year and 8% sequentially, marking the sixth consecutive quarter of record revenue!
1. AMD EPYC Q1 revenue hit a new high, with EPYC deeply bound to NVIDIA DGX data centers.
2. Global hyperscaler capex maintains healthy growth. Vertical industry demand recovers, growing both year over year and sequentially, with large-scale computing leading the data center business.
Our view on the data center business remains: after the CPU/GPU/DPU triad roadmap announcement, if NVIDIA maintains its current growth rate, surpassing Intel in data center within a few years is not a dream.
Automotive slightly misses expectations, revenue explosion expected next year
If one must nitpick, the only shortfall in NVIDIA's Q1 report was a 0.6% year-over-year decline in automotive. Even technically lagging Mobileye managed 32% year-over-year growth on ADAS chips.
With NIO, XPeng, Li Auto, SAIC and a host of L3+ models slated for first-half 2022 delivery, NVIDIA's earnings inflection point likely remains in 2022.
Summary: Semiconductor's strongest growth stock
Although NVIDIA's growth rate is not the highest among semiconductor Q1 reports (AMD Q1 +93%), its ultra-high margins, near-term earnings visibility, and long-term market breadth stand alone among all semiconductor companies.
Too many still perceive NVIDIA only as gaming cards and mining, lacking awareness of the AI reality. I fully agree with Jensen Huang's three-stage AI view on the call: stage one was the birth of the AI computing platform seven or eight years ago, stage two was the birth of cloud computing, stage three is AI industrialization—and we are now in stage three.
Many media cite capacity constraints to explain NVIDIA's post-earnings share decline, exactly as they did after the Q4 report. Ignore short-term price swings. The view remains: capacity is an industry-wide issue, and NVIDIA's split production between Samsung and TSMC is actually an advantage.
NVIDIA's Q2 guidance calls for $6.3B in revenue, up 63% year over year, which would mark the fifth consecutive quarter of record highs!
Many friends always complain why NVIDIA comes up every time U.S. stocks are discussed, as if it's the only stock I follow. Not at all; I primarily cover semiconductors (the crystallization of human intelligence), like many cloud SaaS companies (excellent business models), and follow some interesting TMT names.
But once you understand NVIDIA, you get a "five mountains return, no other mountains matter" feeling. This company's foresight into the future is virtually unmatched. In one sentence: AI + Robotics is the future.