Every investor's hope is to buy a stock that produces outsized gains. Oftentimes, that means buying quality businesses and holding the stock for the long term. Even the greatest companies in the world can go through rough short-term patches when the stock plummets. However, holding through those tough times is where investors are rewarded.
As an established leader in the technology sector, Nvidia (NVDA 0.29%) has a long history of strong business results in producing the computer chips that power our digital world. Let's dig into Nvidia's recent earnings results to see what has led this business to the outsized results it has provided its long-term shareholders.
Image source: Getty Images.
A diversified product base
Since its beginning as a producer of PC graphics cards, Nvidia has grown its business to include several areas of chip production, powering many different markets, including scientific computing, artificial intelligence (AI), data science, autonomous vehicles, robotics, augmented reality (AR), and virtual reality (VR).
Nvidia recently reported results for the first quarter of fiscal year 2023. Revenue for the quarter was $8.3 billion, up from $5.7 billion in the year-ago quarter, indicating a year-over-year (YOY) increase of 46%. For increased clarity on the business's performance, Nvidia breaks its revenue down by the markets it serves.
|
Revenue (in millions) |
Q1 2023 |
Q1 2022 |
YOY Growth |
|---|---|---|---|
|
Gaming |
$3,620 |
$2,760 |
31% |
|
Data Center |
$3,750 |
$2,048 |
83% |
|
Professional Visualization |
$622 |
$372 |
67% |
|
Automotive & Robotics |
$138 |
$154 |
(10%) |
Data source: Nvidia. Chart by author. YOY = year over year.
Nvidia showed strong growth in its three largest markets, and its gaming and data center segments set quarterly revenue records. Auto revenue was down due to the automakers' supply constraints, so that result is not surprising. Nvidia has its products in several areas of the market, lessening its risk should one industry face secular headwinds.
Improved efficiency and profitability
The first quarter also saw some positive movements with Nvidia's margin profile. Gross margin for the quarter was 65.5%, an improvement from 64.1% in the year-ago period. While operating income fell 4% YOY, that included an expense related to the termination of Nvidia's attempted acquisition of SoftBank's (SFTB.Y 1.54%) Arm Holdings.
On an adjusted basis -- which excludes this one-time expense, as well as stock-based compensation -- operating income actually increased 55% year over year. Non-generally accepted accounting principles (non-GAAP) net income and earnings per share grew 49% YOY. Nvidia is showing its ability to not only grow revenue but also decrease expenses and improve efficiencies, positively impacting the bottom line.
Impact of a $10,000 investment
These results are the latest in a long line of impressive quarterly reports, highlighting Nvidia's important role in our digital, tech-driven world. Currently boasting a market cap of $471 billion, Nvidia is a major player in the tech economy.
However, 10 years ago, that wasn't the case. At that point, Nvidia had a market cap of only $7.1 billion, and its shares traded for approximately $3.00 (split-adjusted). For investors who saw the potential in Nvidia, a $10,000 investment made 10 years ago and held through today would be worth more than $660,000.
Where does Nvidia go from here?
As impressive as Nvidia's 10-year result may seem, that return would have been close to $1.2 million at Nvidia's most-recent high. Only time will tell whether Nvidia can get back to those lofty heights, but the company has continued to grow and increase its presence in the chip space over the past decade and doesn't show signs of slowing down.
Nvidia currently has a price-to-sales ratio of 16, which is not cheap. However, that multiple is 54% off its high, providing a steep discount for investors who believe Nvidia will continue to reward shareholders for years to come.
