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Nvidia’s results exceeded even the most optimistic forecasts

INVESTINGNvidia's results exceeded even the most optimistic forecasts

Nvidia’s revenue in the fourth quarter amounted to $22.1 billion, which is 265 percent more than a year earlier. The boom in artificial intelligence is causing the company’s revenues in 2024 to potentially reach $100 billion. Artificial intelligence is already significantly impacting our reality, so it is difficult to talk about a market bubble in its case.

Nvidia presented excellent financial results for the fourth quarter of 2023 (ended January 28, 2024) on Wednesday evening. The company confirmed its leadership role among technology companies and as a driving force that recently pulled up the S&P500 index. The good results indicate that the company’s development and solutions related to artificial intelligence are accelerating. The company met investor expectations, which were already high after the company’s stock prices increased by half since the start of 2024.

The company recorded $22.1 billion in quarterly revenue, which is 22 percent more than in the previous quarter and 265 percent more than in the same period a year earlier. Analysts’ expectations predicted revenue growth to $20.41 billion. In the first quarter of this year, the company predicts revenue growth to $24 billion. EPS, or earnings per share, was $5.16 as compared to analysts’ expected $4.60.

The company’s data center infrastructure department generated revenue of $18.4 billion, which represents a growth of 409 percent compared to data from a year ago. This revenue results from, among others, sales of H100 processors, which currently form the basis of computational power for artificial intelligence. These processors power services such as ChatGPT or Microsoft’s Copilot.

Nvidia’s further profit forecasts remain high, especially in the context of artificial intelligence development. Soon, other companies such as Apple are expected to introduce solutions based on this technology. Thus, it seems that the company is on the right track for its 2024 revenues to approach $100 billion.

In this context, many investors today ask themselves whether in the case of Nvidia and AI shares we are dealing with a market bubble? A bubble is a situation where there is an unjustified increase in share prices, solely driven by market sentiment.

Let us take a closer look at this issue. Of course, it is easiest to determine whether a bubble has occurred or not from a perspective of time. We currently do not have this comfort, but we can look at previous stock market bubbles from the last 100 years and create a list of conditions necessary for the formation of a bubble. We reached to the book “Boom and Bust: A Global History of Financial Bubbles”, which analyzes the history of stock market bubbles.

For a bubble to form, three elements are mainly needed:

1) Market popularity and easy liquidation of assets. This is the case with Nvidia. The company is popular, hopes associated with artificial intelligence are high. The company is the third largest in the S&P500 and part of the group “Magnificent Seven from Wall Street”, accounting for nearly 1/3 of the index capitalization.

2) Cheap money in the market, easy access to money and loans. This is not the case in the current situation – the United States interest rates are at a record high level, and the yields of 10-year bonds in the States are the highest since 2008.

3) Strong investor speculation – this is also not the case here. The future P/E (price/earning) ratio of Nvidia is below 35x, investor sentiment remains average, and the market is unbalanced and concentrated. But there is no Biden bubble in this situation – subsidies supporting recovery in this industry.

Paweł Majtkowski, eToro analyst in Poland

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