After the failure of the acquisition of Arm, Nvidia handed over its fourth quarter and full year 2021 financial reports. Judging from the data, it has continued to exceed expectations for many quarters, with revenue and net profit reaching record highs for 7 consecutive quarters, resisting the risk of supply chain tension. It has also made breakthroughs in scalable businesses outside of gaming and data centers, such as a partnership agreement with Jaguar Land Rover.
Despite this, Nvidia's after-hours stock price ended with a 2.68% decline. In fact, after nearly 30% of the stock price has fallen since November last year, the market still has not formed a unified judgment on the rationality of NVIDIA's valuation. Of course, this may be more attributable to the macro. Even if NVIDIA's performance is stable and the future is bright, investors' resistance to risk still prevails.
Business even hit new highs, chip supply or continue to be under pressure
Data released by the Semiconductor Industry Association (SIA) shows that global semiconductor sales exceeded $500 billion for the first time in 2021, a record high, and Nvidia is an important beneficiary.
In the fiscal fourth quarter of fiscal 2022 ended January 30, Nvidia achieved revenue and GAAP net profit of $7.643 billion and $3.003 billion, respectively, an increase of 53% and 106% year-on-year. Adjusted net profit also surged 71%. Including EPS, 2023Q1 revenue and other data, in addition to the adjusted gross profit margin of 67% lower than the analysts' consensus expectations of 0.1%, the automotive business revenue by chip supply constraints are less than expected, NVIDIA's financial data have exceeded market expectations across the board, once again showing its strong growth.
It is worth mentioning that Q4 revenue by structure, although the game business is still up 37% year-on-year to $3.42 billion, the much-watched data center revenue business increased by 71% to $3.26 billion, which is about to surpass NVIDIA's game business and become the largest revenue pillar. According to the data previously disclosed by the official, 25% of NVIDIA's existing users in the game business have been upgraded to RTX graphics cards, and there is still great potential.
In addition, as Kimngai Chan, an analyst at Summit Insights Group, put it: "An important part of NVIDIA's gaming business sales does include crypto mining, and we think there may be instability in demand in this part." Nvidia's chip product for cryptocurrency "mining" CMP's total sales in fiscal 2022 was only $550 million, far less than the company's optimistic expectations.
In addition, Nvidia's professional visualization business revenue was $643 million and automotive revenue was $125 million , the latter was the only decline, with a 14% decline. Considering the impact of the lack of cores in the automotive industry, this is a problem that NVIDIA cannot solve. Nvidia previously mentioned at CES2022 that it has occupied an excellent position in automobiles and autonomous driving, and this earnings report has also become an opportunity for Nvidia to announce a long-term cooperation agreement with Jaguar Land Rover. Starting in 2025, NVIDIA will provide JAGUAR Land Rover with AI-powered automotive safety and autonomous driving technology.
However, Nvidia really hasn't gotten rid of the chip industry's lack of capacity, just like its automotive customers. "We expect supply to improve every quarter in the future." CEO Huang Jen-hoon said so on an earnings call. This is the consensus of the industry, and previously, AMD CEO Su Zifeng also said: "The semiconductor industry is making a huge investment, whether you are talking about the wafer side, or on some substrate or back-end assets. So we are making progress. I do believe that the first half of this year will continue to be quite tense. But in the second half of this year, I think things will be a little better. ”
The clearest part of this limitation is the game, which causes players to remain slow to evolve. But incrementally, the key point of supply will fall on the data center business, which is currently the most competitive and core part of revenue growth.
Data centers are growing rapidly, leaving AMD more and more behind
According to statistics from CITIC Securities, since the end of Q2 in 2021, global cloud computing giant Capex has continued to expand spending and seek further expansion, which will further amplify the demand for Nvidia chips and solutions. CEO Jen-Hsun Huang emphasized: "We see strong demand for Nvidia's computing platform. Citi analyst Atif Malik believes that at least in 2022, the trend in data centers is "stable."
This is more likely due to the fact that amazons, microsoft, and Google have previously disclosed a positive outlook for cloud computing, which indicates more software and hardware demand. CEO Jen-Hsun Huang concluded: "There are several growth drivers for the company's data center business, including hyperscale data centers, public clouds, enterprise core clouds and enterprise edge clouds, all of which have grown. So while NVIDIA's data center revenue is close to gaming revenue, it's growing at nearly twice as fast as the game business — with both sides subject to significant supply constraints.
Nvidia is not the only beneficiary, when AMD announced its earnings report on February 1, its CEO Su Zifeng talked about the significant growth of data center hardware procurement. However, in terms of revenue effectiveness, the gap between AMD and NVIDIA is continuing to widen. This does not mean that Nvidia "crushes" AMD with 83% of the GPU share of the personal computer market, but emphasizes that at the time of the rapid development of the entire industry, Nvidia's dominant position is producing stronger discourse power and suppression. According to Mordor Intelligence, demand for data center acceleration chips is expected to grow by nearly 15 percent this year, and this growth rate is likely to continue into 2026. According to market research firm Omdia, Nvidia will once again lead the field with an 80 percent share.
At least in the data center-related field, NVIDIA's short-term goal is to nearly double its global hyperscale/vertical market share to 20%. On some basic hardware, CEO Jen-Hsun Huang expressed full confidence on a conference call: "We are the largest consumer of the fastest memory speed product in the world, and as far as I know, there is no close second place." "We have the fastest network in any system." He added.
At present, AMD's few "leading" moves may be the successful acquisition of Xilinx, which will bring new drivers to it in markets such as AI cloud computing and edge computing, which is in stark contrast to NVIDIA's failed acquisition of Arm. Nvidia originally tried to use the acquisition of Arm to expand its AI solutions in data centers, while tapping into the potential of Arm data centers, such as server CPUs. But now it can only be achieved by purchasing a long-term license. CEO Jen-Hsun Huang expressed regret: "We did our best, but the opposition was too strong. ”
Nevertheless, in a special context, whether it is the failure of a transaction or the performance exceeding expectations, it is difficult to change the perception of investors. Nvidia's trillion-dollar market cap last year is well under record, but for now its sell-off seems far from over, and after falling about 28 percent from its November high last year, the turnaround Nvidia needs seems to be beyond what it can provide on its own.
Say goodbye to Arm trading, what is NVIDIA waiting for after the big fall?
When the pressure of macro rate hikes appeared, the market's concern was whether its valuation and expectations were too expensive compared to NVIDIA's business growth. Currently, the Nasdaq 100 is down 14 percent in 2022, and Nvidia doesn't prove its uniqueness in resisting risk. Matt Bryson, an analyst at Wedbush, said: "We expect data centers to rise for another quarter, with growth likely to continue to be determined by supply challenges rather than any shortage of final demand. But he only gave a neutral rating because "our concerns are still mostly related to valuations." Nvidia currently has about 49 times pe, compared to about 90 times last year's peak.
If the acquisition of Arm is successful, beyond the data center business, NVIDIA is expected to go deep into mobile, IoT and edge computing. Losing this opportunity is not only a $1.36 billion "break-up fee", but also a chance to quickly improve ability. Amazon AWS accelerates self-developed CPU and acceleration chip processor, Google builds a heterogeneous accelerated cloud computing network based on Open-CL to control the potential demand for Nvidia CUDA, Texas Instruments and Infineon's competitiveness in the field of automotive electronics, these comprehensive factors may affect the stability of Nvidia's position, although the short-term will not let the market pattern change anything, but the market is extremely concerned about how long Nvidia's rapid growth can be maintained. In the case of a higher base, demand and price increases in the semiconductor industry have a tendency to dominate NVIDIA's ability to exceed expectations, unless it can come up with better products.
In fact, the day before the reference earnings report, Nvidia rose sharply due to the easing of macro trends, and the strong dominance of its emotional factors still exists. It's hard to fuel growth through business alone. However, if more factors stabilize market sentiment emerge within a month, Nvidia is likely to get a new boost at the GTC in March this year, which CEO Jen-Hsun Huang called "the most exciting developer conference ever", with key messages including new chips, new computing platforms, new AI and robotics breakthroughs and a new frontier for Omniverse.
In the second half of the year, the pressure on game and network supply will ease, on the one hand, it can release the potential of NVIDIA's products, on the other hand, it will also form a challenge to shipment, because the pressure relief is aimed at the entire industry. The good news is that this is even more critical in the automotive business. CFO Kress emphasized: "Between the fourth and first quarters, we are likely to achieve sequential growth in the automotive sector. "If industry demand is stable, this growth may continue."
Further afield, there's room for new imaginations in Nvidia's software revenue, which includes many parts of NVIDIA AI Enterprise, Omniverse, and DRIVE. CEO Jen-Hsun Huang simplified it into 25 million servers, 40 million designers and creators, and 10 million cars in his description, which is a huge market. Nvidia can't yet give specific data on the software business, but when it starts packaging some services, new opportunities are already brewing. As long as the technical barriers are still there, you can always believe in the "selling shovel" NVIDIA, it only needs a reasonable timing.