Shares of Nvidia (NVDA +1.99%) were down 1.5% in after-hours trading on Tuesday as of 6:27 p.m. ET following the graphics chip specialist's release of a powerful report for the third quarter of fiscal 2024 (ended Oct. 29).
The stock's movement is not reflective of the company's third-quarter results, as both revenue and adjusted earnings per share (EPS) crushed Wall Street's consensus estimates. Moreover, management's fourth-quarter guidance for both the top and bottom lines raced by analysts' expectations.
The stock's slight decline is attributable to chief financial officer Colette Kress' commentary about the U.S. government's new and expanded restrictions on the company's exports to China and certain other countries of its artificial-intelligence (AI) enabling products that exceed certain performance thresholds. As Kress wrote:
These licensing requirements did not have a meaningful impact on our revenue in the third quarter of fiscal 2024 as they were announced near the end of the fiscal quarter. ... Our sales to China and other affected destinations, derived from products that are now subject to licensing requirements, have consistently contributed approximately 20%-25% of Data Center revenue over the past few quarters. We expect that our sales to these destinations will decline significantly in the fourth quarter of fiscal 2024, though we believe the decline will be more than offset by strong growth in other regions.
Nvidia's key numbers
| Metric | Fiscal Q3 2023 | Fiscal Q3 2024 | Change |
|---|---|---|---|
| Revenue | $5.93 billion | $18.12 billion | 206% |
| GAAP operating income | $601 million | $10.42 billion | 1,633% |
| GAAP net income | $680 million | $9.24 billion | 1,259% |
| Adjusted net income | $1.46 billion | $10.02 billion | 588% |
| GAAP earnings per share | $0.27 | $3.71 | 1,274% |
| Adjusted EPS | $0.58 | $4.02 | 593% |
Data source: Nvidia. GAAP = generally accepted accounting principles. Fiscal Q3 2024 ended on Oct. 29, 2023.
Investors should focus on the adjusted numbers because they exclude one-time items.
Revenue was up 34% from the second quarter, which is great sequential growth, especially for a company of Nvidia's huge size.
Wall Street was looking for adjusted EPS of $3.09 on revenue of $14.84 billion, so Nvidia demolished both expectations. It also cruised by its own guidance, which was for adjusted EPS of $3.32 on revenue of $16 billion.
NASDAQ: NVDA
Key Data Points
Platform performance
| Platform | Fiscal Q3 2024 Revenue | Change YOY | Change QOQ |
|---|---|---|---|
| Data center | $14.51 billion | 279% | 41% |
| Gaming | $2.86 billion | 81% | 15% |
| Professional visualization | $416 million | 108% | 10% |
| Automotive | $261 million | 4% | 3% |
| OEM and other | $73 million | Flat | 11% |
| Total | $18.12 billion | 206% | 34% |
Data source: Nvidia. OEM = original equipment manufacturers; OEM and other is not a target-market platform. YOY = year over year. QOQ = quarter over quarter.
As with the last couple of quarters, the AI-driven data center platform's revenue set another quarterly record high. This platform accounted for 80% of the company's total quarterly revenue.
What the CEO had to say
Here's part of what CEO Jensen Huang had to say in the earnings release:
Our strong growth reflects the broad industry platform transition from general-purpose to accelerated computing and generative AI. ... NVIDIA [graphics processing units], [central processing units], networking, AI foundry services, and NVIDIA AI Enterprise software are all growth engines in full throttle. The era of generative AI is taking off.
Generative AI is the tech behind OpenAI's ChatGPT chatbot, which has exploded in popularity since its full release to the public last fall.
Fourth-quarter guidance
For the fiscal fourth quarter (which ends in late January 2024), management expects revenue of $20 billion, which equates to growth of 231% year over year. It also guided (albeit indirectly by providing a bunch of inputs) for adjusted EPS of $4.46, or 407% growth.
Going into the report, Wall Street had been modeling for fourth-quarter adjusted EPS of $3.45 on revenue of $16.38 billion, so the company's outlook easily exceeded both estimates.
Another powerful quarter
The just-reported quarter was the third consecutive one in which Nvidia's results crushed Wall Street's top- and bottom-line expectations, in large part thanks to voracious demand for its technology that enables generative AI capabilities. Gaming and professional visualization also turned in robust year-over-year results. Reiterating what I wrote after the company released its last two quarterly reports:
Nvidia already had many long-term avenues for growth (such as cloud computing, non-generative AI, gaming, autonomous vehicles, and the metaverse) before generative AI arrived recently on the scene. Generative AI should significantly rev up Nvidia's long-term growth potential.
I think investors are overreacting to the export licensing/restrictions situation concerning China and certain other countries. Nvidia essentially owns the generative AI chip and related tech space, and has more than enough demand from other regions to compensate for any loss of business from China and other affected countries, as Kress noted in her commentary. This seems evident based on management's fourth-quarter guidance.
