Nvidia Stock Soars Past $500 After Chipmaker Demolishes Q2 Estimates On AI-Fueled Record Data Center Revenue

Nvidia Corp. NVDA did not disappoint investors Wednesday with second-quarter earnings that are well ahead of expectations thanks to the strong momentum imparted by its positioning in hot-and-happening artificial intelligence technology.

Reflecting the strength, Data Center revenue rose to a record and accounted for roughly two-thirds of the total. The company issued third-quarter revenue guidance of $16 billion, more than $3 billion above what the Street was expecting.

After settling Wednesday’s regular session 3.17% higher at $471.16, the stock is running 8.04% higher to $509.06 in the after-hours session, according to Benzinga Pro data.

Nvidia’s Key Q2 Numbers: Santa Clara, California-based Nvidia’s second-quarter non-GAAP earnings per share rose 429% year-over-year from 51 cents to $2.70. Sequentially, the measure improved 148% from the previous quarter’s $1.09 per share.

Analysts, on average, expected the bottom-line result to come in at $1.91.

The earnings growth reflects strong revenue that climbed 101% year-over-year and 88% sequentially to a record $13.51 billion. The topline came ahead of the consensus estimate of $10.3 billion and the company’s guidance of $11 billion plus or minus 2%.

The non-GAAP gross margin was 71.2%, higher than the year-ago’s 45.9% and the previous quarter’s 66.8%.

Ahead of the results, KeyBanc Capital Markets analyst John Vinh said he expected second-quarter revenue and earnings per share of $12.7 billion and $2.49 per share, respectively.

Huang Says ‘New Computing Era Has Begun’: Nvidia CEO Jensen Huang said major cloud service providers rolled out “massive” Nvidia H100 AI infrastructures, and enterprise IT and software providers announced partnerships bringing Nvidia AI to every industry.

“The race is on to adopt generative AI,” Huang said.

"A new computing era has begun. Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI.”

Nvidia GPUs connected by the company’s Mellanox networking and switch technologies and running its CUDA AI software stack make up the computing infrastructure of generative AI, he said.

Nvidia’s Q2 Performance By Segment: The Data Center segment, which fetches the company more than half of its total revenues, reported record revenue of $10.32 billion thanks to the strong growth of the accelerated computing platform. Generative AI is fueling the growth of the accelerated computing platform.

Nvidia's CFO Colette Kress said the record Data Center revenue was due to strong demand from cloud service providers and large consumer internet companies, with development of large language models and generative AI increasing demand for the Nvidia HGX platform based on Hopper and Ampere GPU architectures.

The company’s high-performance AI chip H100 powers AI models and applications, and demand for the chip has gone through the roof. A recent Financial Times report said Middle Eastern countries have flooded the company with orders for the chip as they seek computational sovereignty.

Nvidia will likely ship 550,000 of its H100 chips globally in 2023, the FT report said. At $40,000 apiece, the sales could rake in revenue of $22 billion for the company.

KeyBanc’s Vinh said Nvidia has a unique and unmatched position to preemptively monetize generative AI trends.

Revenue from the Gaming business, which sells GeForce RTX family of GPUs, continues to recover following a bottom in the third quarter. The professional visualization business is also on an upward trajectory following a third-quarter bottom.

Automotive segment revenue jumped strongly to another record, thanks to strong demand for high-performance chips for autonomous driving solutions.

Source: Nvidia’s earnings statement.

See Also: Best Artificial Intelligence Stocks

Nvidia Shareholder Returns: Nvidia said it returned $3.38 billion to its shareholders in the second quarter, including repurchases of 7.5 million shares worth $3.28 billion and cash dividends. The company also announced a 4-cent-per-share dividend payable on Sept. 28 to shareholders of record as of Sept. 7.

The company also said its board authorized an additional $25 billion in share repurchases, without expiration.

Nvidia’s Q3, Near-Term Outlook: For the third quarter, Nvidia expects revenue of $16 billion plus or minus 2% while the consensus estimate is at $11.57 billion. The company guided to a non-GAAP gross margin of 72.5% plus or minus 50 basis points.

The Street models full-year 2024 earnings per share of $7.57 on revenue of $40.83 billion.

Ahead of the results, Wedbush analyst Daniel Ives said: “We expect a bullish outlook from Nvidia that should be the fuel in the engine to continue this tech rally into the rest of the year despite the tough-talking Fed with Jackson Hole/ Powell speech around the corner.”

KeyBanc’s Vinh sees Nvidia’s second half showing continued growth even off the massive second-quarter levels, given the still-limited industry capacity near term. The analyst also shrugged off the impact from China export restrictions, as orders will likely be backfilled with demand from other customers.

The upcoming non-CoWoS-based L40S ramp addresses the pent-up demand from China given the competitive performance versus the A100 chip, attractive pricing, and being non-subject to export restrictions, he added.

Nvidia Stock Performance: Nvidia stock has been the best-performing S&P 500 stock this year, gaining 219% to date.

The stock trades at a hefty forward P/E multiple of 58 but analysts are not too concerned about the heady valuation. The average analyst price target, based on data compiled by TipRanks, is $535.67, suggesting about 15% upside.

Read Next: Jim Cramer Dives Deep Into Nvidia’s ‘Really Incredible’ Monday Surge: What Stock’s Short Interest Looks Like Ahead Of Q2 Print

Photo courtesy of Nvidia.