Nvidia's (NVDA) second quarter results smashed analyst expectations on both the top and bottom lines. The company reported adjusted earnings of $2.70 a share compared to estimates of $2.07. Revenue of $13.51 billion was well above Street estimates of $11.04 billion. Nvidia's third quarter revenue outlook was also far better than expected. The company also authorized a $25 billion share buyback.
CFRA Research Senior Equity Analyst Angelo Zino joined Yahoo Finance Live to discuss the results. Zino says the guidance was "fantastic" and that "it's absolutely astonishing how quickly the revenue trajectory of this company has grown over the last two to three quarters." Zino even makes the case that "Nvidia is probably going to be the most important company to civilization over, we think, the next five to ten years."
- Nvidia with its second-quarter results, and look at that. We're looking at gains of just about 6.5% here in extended trading. Another huge report here from the chipmaker. A lot of this gain that we're seeing in after-hours is because of that massive forecast that they're giving here for third-quarter revenue, $16 billion-plus or -2%.
The estimate was for 12 and 1/2 billion when we take a look at the numbers for its second-quarter revenue coming in better than expected, 13 and 1/2 billion. The estimate was for just over $11 billion. That's up 101% on a year-over-year basis.
Record data center revenue of 10.32 billion. The estimate was for 7.98 billion. That's up 171% from a year ago.
Gaming revenue 2 and 1/2 billion, beating the Street's expectations. Adjusted EPS also coming in better than expected $2.70. Nvidia also approving an additional $25 billion in share buybacks. Let's break it all down.
For that, we want to bring in Angelo Zino, CFRA research senior equity analyst. Angelo, good to see you here. An extremely strong report from NVIDIA. What do you think of it, your first take?
ANGELO ZINO: No, it was fantastic. I mean, clearly, as far as the quarter is concerned, it was all about the data center side of things. You kind of broke down the numbers extremely well. And you kind of look at where data center landed, at about 10.3 billion.
That compares to about $4.3 billion just in the prior quarter. And to your point, grew north of 100-- 170%. Our view, it would come in at around 8 billion. So north of 25% higher than what we anticipated on that side of things.
I think also on the gaming side of things, it also looked really good. Grew about 22% year over year. We were looking for growth of about 15%. That was the first quarter. Gaming actually saw a growth in five quarters. So it was good to see kind of a return to year-over-year growth on that side of things. So clearly due to some easy comps on that side.
And then of course, in terms of the guidance, I mean, absolutely fantastic looking at a $16 billion run rate now. You're talking about a company that's now annualized running at a revenue clip of north of $60 billion, right. So it's just absolutely astonishing how quickly the revenue trajectory of this company has grown here over the last two to three quarters.
- So Angelo, when you think about Nvidia, it's kind of like the-- I keep thinking kind of this Olympic analogy. It's like that you say, in bolt in this space. You've had a $500 price target on this. It's clearly going to eclipse that based on where it is in after-hours trading. How much further do you see this stock running?
ANGELO ZINO: I think that's a good question. I mean, I think what everyone's kind of thinking about these days is, Nvidia is clearly kind of entrenched in a highly cyclical industry. I will say this. There are parts of Nvidia's guidance and revenue trajectory right now that is cyclically oriented. And then there are parts that are where you've kind of got a real structural shift and change taking place.
And just looking in terms of their GPU business, right, I mean, you look at an AI server today, you've got about eight GPU sockets that you can attach to an AI server. Whereas, some of those traditional servers, you're talking about two GPUs.
So their addressable market is really growing exponentially here. Not only here in 2023, but over the next couple of years, we think that trend will continue as a bigger percentage of the server market becomes AI-driven in nature.
We've kind of seen some of the forecasts that have been driven out there by the likes of Lisa Su and Jensen Huang, in terms of how big the accelerator market can be, which is really the key driver here on the-- as we kind of shift towards this more AI-enabled market.
And our view is, this grows from a mid-30s revenue run rate in terms of accelerators to one that's going to grow north of $130 billion by 2026, 2027. So we think there's real runway here to continue not only into 2024, but even beyond there.
- So Angelo, a massive runway for growth. But one of the limits and one of the things that we've been talking about over the last couple of weeks that's been brought up a number of times by analysts has been this expectation or question about whether or not Nvidia is going to be able to have enough supply to meet that demand. Is that an issue? How big of a realistic issue do you see that being? Because it doesn't sum up with the numbers.
ANGELO ZINO: I mean, get it from the gui-- [CHUCKLES] Yeah, you look at the guidance out there, right? I mean, it definitely seems like Taiwan Semi out there is throwing some preferential treatment out there to Nvidia.
So as far as being able to get access to that supply, it doesn't seem like it's an enormous issue here right now. We do think that demand continues to outstrip supply. So their numbers could probably be even better than some of the numbers they are guiding to.
But that's a great problem to have if you're Nvidia. And in many respects, it's probably a good problem to have because you don't want to overheat in this market, right.
The fear clearly is on a double ordering side of things. But when you kind of think about some of the big cloud providers out there and what they need to do to kind of upgrade their infrastructure, again this isn't going to be a one or two quarter thing. This is going to be a multi-year process in terms of our view. So it is somewhat supply constrained. But we don't think it's much of an issue when you kind of look at the guidance that they've been given out there.
- And so to your point about Jensen Huang talking about just this transition that companies are making, he said in the earnings report, quote, "A new computing era has begun. Companies worldwide are transitioning from general purpose to accelerated computing and generative AI."
So when you think about Nvidia and you kind of draw parallels to say, the dot com era and who the leaders were then, who would you liken Nvidia to and how much, like, how long do we think this runway is going to last, especially when we're starting to see a little bit of cracks when it comes to some economic headwinds happening?
ANGELO ZINO: Yeah. So when I think of an NVIDIA, I actually compare them more along the likes of some of the bigger trillion dollars companies you have out there, whether it be kind of an Apple and what they've done to the mobility era, what Amazon has done to the e-commerce era out there.
And we have previously stated that Nvidia probably going to be the most important company to civilization here, we think over the next 5 to 10 years. Not necessarily the biggest market cap company, but the most important one out there because they are going to drive-- essentially, I mean, essentially every single enterprise company out there on the planet, whether directly or indirectly, will be exposed to Nvidia here over the next 5 to 10 years and will significantly rely on NVIDIA to an extent.
So to that extent, we would compare them to the likes of an Apple and Amazon, maybe a Netflix, to what they've done on the streaming side of things. So that's how I would kind of compare Nvidia relative to some others out there.
- Angelo, do you see anything stopping this massive boom in spending that we've seen in AI and the hype around it, Nvidia being the leader? And the fact that given the forecast, they're not seeing it slow down any time soon.
ANGELO ZINO: Yeah, listen. I think as far as the risk out there for NVIDIA, I mean, competitive pressures are not something that we think is a major risk out there. Clearly, AMD is coming out with their offering out there. And we do love what AMD has the potential to do in 2024 and beyond with their MI300 chip that's going to roll out here over the next couple of quarters.
Intel's got some potential out there, but nothing we're concerned about as far as the NVIDIA story is concerned. But clearly, there is a cyclical risk that you always have to take into account here.
There is kind of uncertainty on the China side of things. Is there some sort of ban that's on the horizon that could have a bigger impact to Nvidia's business over time? That does kind of have a potential impact to the addressable market out there for NVIDIA.
And then also, as things eventually start to level off here, is there some sort of pricing risk out there in terms of their business? Clearly, they are pricing their GPUs at a significant premium right now. So there is going to be at some point, some sort of downdraft for NVIDIA, given some of the cyclical nature of this business.
But that said, I mean, if you are a true long-term investor looking out over the next three to five years, we think there is considerable upside to the revenue trajectory of this company.
- All right, Angelo Zino, great to get your perspective. CFRA Research Senior equity analyst, thanks.
ANGELO ZINO: Thanks for having me.