Nvidia: Surfing Tailwinds Through 2023

Sundry Photography

We stay buy-rated connected NVIDIA Corporation (NASDAQ:NVDA) station 4Q23 net results. We judge NVDA is rebounding toward 2H23 and expect nan institution to acquisition important request tailwinds driven by its caller merchandise rhythm and hype around Artificial Intelligence (A) chips.

We judge NVDA is doing good to return its gaming proviso to a much normal full addressable marketplace (TAM) aft nan terrible downside from crypto-mining-related GPU income has been priced into nan banal and outlook. We're much constructive connected NVDA now than we were a twelvemonth ago, arsenic we expect nan company's serviceable disposable marketplace (SAM) expands arsenic it joins nan AI bandwagon. We judge nan banal provides a favorable risk-reward floor plan astatine existent levels.

NVDA banal surged much than 8% successful extended trading this Wednesday aft beating apical and bottommost statement estimates. The institution reported $6.05B successful gross versus nan anticipation of $6B, and EPS came successful arsenic $0.88 compared to an anticipation of $0.81. We judge NVDA has deed its inflection constituent and is now eyeing a broadening addressable marketplace wrong nan semi-space: AI chips. We expect to spot sequential maturation betterment successful nan company's 2 halfway segments: Gaming and Data Center.

We had been sell-rated connected nan semiconductor institution for nan greater portion of 2022 owed to softer unreality request and nan company's vulnerability to weaker crypto-related GPU income owed to Ethereum's (ETH) move from Proof of Work to Proof of Stake. We upgraded NVDA banal successful October based connected our belief that nan weakness from crypto-related income had been priced in, and nan institution was amended positioned to outperform. Consistent pinch our expectations, NVDA has been bouncing backmost and is expanding its AI services successful nan process. The pursuing chart outlines our standing history connected NVDA complete nan past year:

Seeking Alpha

Demand tailwinds grow done 2023

Our bullish sentiment connected NVDA banal is driven by our belief that nan institution is amended positioned to rebound this year, driven by request tailwinds. The past twelvemonth was unsmooth connected NVDA, pinch nan banal dropping to a 52-week-low of $108.13 per share. We judge nan downside from nan weaker gaming request and softer unreality request person been priced into nan stock, and expect NVDA to outperform expectations and nan adjacent group going forward. We expect NVDA to retrieve connected nan pursuing fronts:

1. Wake-up infinitesimal for its AI capabilities

We judge portion of nan stock's surge post-earnings results is NVDA's push into nan AI space. The company's investments successful AI computing chips are paying off, large time. We judge NVDA is taking steps to consolidate its position successful nan increasing AI market. How does NVDA fresh into nan AI battlefield? NVDA's AI chips alteration computers to make consciousness of monolithic quantities of information and train package decision-making. NVDA provides NVIDIA DGX solutions, nan first portfolio of purpose-built AI supercomputers, and respective AI enterprise offerings. The institution besides announced it'll person its ain AI unreality service, teaming up pinch Oracle Corporation (ORCL), Microsoft Corporation (MSFT), and Alphabet Inc. (GOOG) to supply nan usage of NVDA's GTX machines for AI processing.

OpenAI's ChatGPT has opened nan market's oculus to nan larger maturation opportunities successful nan AI space, and we expect NVDA to beryllium an basal subordinate successful nan AI arms title going forward. NVDA's CEO Jensen Huang highlighted this successful nan 4Q23 net call, saying:

"AI take is astatine an inflection point. OpenAI's ChatGPT has captured liking worldwide, allowing group to acquisition AI firsthand, showing what's imaginable pinch generative AI."

NVDA shares person already outperformed nan Philadelphia Stock Exchange Semiconductor Index (SOX) this year. The pursuing chart outlines NVDA's shares successful comparison to its peers.

Bloomberg

We expect NVDA to proceed outperforming expectations and nan adjacent group driven by nan world take of generative AI applications that require NVDA's expertise crossed AI supercomputers, algorithms, information processing, and training methods. We judge NVDA already has a caput commencement against its biggest title successful nan GPU space, Advanced Micro Devices (AMD). Tom's Hardware precocious tested NVDA, AMD, and Intel Corporation (INTC) products successful position of AI conclusion and recovered NVDA schematic units outperform. We expect NVDA's AI services to importantly boost revenues arsenic AI becomes nan world spotlight. We expect nan institution to play a much captious domiciled arsenic nan largest supplier of GPUs to train AI models, pinch nan generative AI marketplace expected to turn astatine 34.6% CAGR betwixt 2022-2030. We judge NVDA is not only recovering from nan downturn of its gaming conception and a slowdown successful information centers but is besides penetrating caller maturation markets.

2. New merchandise cycles to boost demand

We judge NVDA's Gaming and Data Center weaknesses person been priced into nan stock. NVDA's 4Q23 net results reported gaming gross down 46% Y/Y but up 16% sequentially. We're not excessively concerned astir nan Y/Y driblet successful revenue; we judge nan institution is adjusting gaming proviso to nan normalizing request aft past year's crypto-bust. We judge it's much important to item nan gaming revenue's sequential growth, which is positive. We expect to spot gaming request prime up much meaningfully toward 1H24.

On nan different hand, information halfway gross was up 11% Y/Y but down 6% sequentially. We judge nan driblet successful information halfway request sequentially is mostly owed to softer unreality request owed to macroeconomic headwinds pressuring IT spending. We're seeing weaker unreality spending from different semiconductor companies, including INTC and AMD. We expect NVDA's information halfway conception to spot gross maturation retrieve toward 2H23, driven by its caller information halfway GPU.

The pursuing outlines NVDA's quarterly gross inclination by markets arsenic of 4Q23.

NVDA net position 4Q23

Contextualized wrong nan larger semi-peer group, NVDA is among nan biggest semiconductor companies worldwide, pinch a marketplace headdress exceeding $500B- $581.43B, to beryllium precise. As nan AI roar unfolds, we expect NVDA to look arsenic nan biggest chipmaker competing for marketplace share. We urge investors bargain nan banal astatine existent levels.

Valuation

NVDA banal is not cheap, but contempt its comparatively precocious valuation, we judge nan banal provides a favorable risk-reward profile. On a P/E basis, nan banal is trading astatine 53.9x C2023 EPS $4.35 compared to nan adjacent group mean of 25.5x. The banal is trading astatine 17.3x EV/C2023 income versus nan adjacent group mean of 5.1x. We urge investors bargain nan stock, though it is trading good supra nan adjacent group average. We judge NVDA is well-positioned to use from request tailwinds successful nan AI abstraction and done its caller merchandise cycle.

The pursuing array outlines NVDA's valuation compared to nan adjacent group.

TechStockPros

Word connected Wall Street

Wall Street shares our bullish sentiment connected nan stock. Of nan 43 analysts covering nan stock, 29 are buy-rated, 12 are hold-rated, and nan remaining are sell-rated. We judge nan downside of nan weaker gaming request and softer unreality spending person been factored into nan banal and urge investors statesman looking for introduction points into nan banal arsenic NVDA expands its AI services.

The pursuing array outlines NVDA's sell-side ratings.

TechStockPros

What to do pinch NVDA stock

We're bullish connected NVIDIA Corporation, contempt its precocious valuation. The company's 4Q23 net study hit estimates but highlighted a 46% Y/Y diminution successful nan gaming segment. While NVDA whitethorn not person regained its pandemic-led highs, we expect nan institution to beryllium meaningfully rebounding from its 2022 lows and actively expanding its maturation opportunities successful generative AI and information halfway markets.

We judge NVIDIA Corporation provides a favorable risk-reward floor plan astatine existent levels. We expect NVDA banal to proceed to rally toward 2H23, and we urge investors bargain into nan re-emerging NVDA story.

At Tech Stock Pros, we level nan playing section for unit investors by providing nan best-in-class investigation that is only accessible to organization investors. We are nan focal constituent wherever tech engineering and finance meet. We started arsenic engineers pinch years of acquisition astatine high-tech companies earlier earning an MBA. Since then, we’ve been top-ranked (Starmine Thomson Reuters, Factset, Institutional Investors) tech equity analysts astatine Wall Street bulges. We are nonsubjective successful our appraisal of nan technologies progressive and often return contrarian positions aft a thorough investigation into nan hype and accepted wisdom. We are your eyes into nan market; we show and specialize successful exertion stocks from an industry-first attack to supply best-in-class finance investigation to unit investors.