Nvidia (NVDA +3.09%) caused some jaws to drop with its fourth-quarter results announced a couple of weeks ago. The chipmaker's revenue soared 265% year over year to a record high. Its generally accepted accounting principles (GAAP) earnings skyrocketed by 586%. Free cash flow jumped nearly 6.5x.
Any way you look at it, Nvidia's growth story is impressive. But can the company keep growing by leaps and bounds? These two numbers scream an emphatic "yes."
NASDAQ: NVDA
Key Data Points
Executives want more AI -- and soon
Boston Consulting Group (BCG) recently surveyed more than 1,400 C-suite executives. These corporate leaders spanned 14 industries and 50 markets. Despite their varied backgrounds, most of these executives were in agreement on two key things.
First, BCG found that 85% of the executives surveyed stated that they plan to increase their organization's investments in artificial intelligence (AI) and generative AI in 2024. Interestingly, that number is significantly higher than the 71% of respondents who plan to boost overall tech spending.
Second, a whopping 89% of executives surveyed by BCG ranked AI and generative AI as one of their top three technology priorities for this year. Many of these leaders were dissatisfied with their organizations' progress so far in adopting AI and generative AI.
While those two numbers were the key takeaways, in my opinion, from BCG's survey, there was something else that jumped out to me. More than half (54%) of the executives said that they expect to obtain cost savings from AI this year. BCG quoted Hans Vestberg, CEO of Verizon Communications, as saying, "In every step of the AI journey, we got more and more efficient. The difference with GenAI is that the level of efficiency is so much higher."
Great news for Nvidia
These sky-high numbers reflecting that executives want more AI (and especially, generative AI) shouldn't be surprising. Nvidia CEO Jensen Huang said in his company's fourth-quarter press release, "Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries, and nations."
Dell Technologies COO Jeff Clark also confirmed in his company's latest quarterly update that the demand for graphics processing units (GPUs) is exceptionally strong. Clark noted that "most customers are still in the early stages of their AI journey."
It isn't just companies that are jumping on board the AI bandwagon. Nvidia CFO Colette Kress mentioned in the Q4 conference call, "Countries around the world are investing in AI infrastructure to support the building of large-language models in their own language, on domestic data, and in support of their local research and enterprise ecosystems."
All of this should add up to sustained sales growth for Nvidia in 2024 and almost certainly beyond. Its Hopper architecture and InfiniBand networking have become the de facto standard for AI infrastructure.
Revenue growth doesn't always translate to stock growth
I don't think there's any doubt whatsoever that Nvidia's revenue will continue to grow by leaps and bounds. The demand for AI is growing faster than the supply for GPUs. But does that mean Nvidia stock will continue soaring as well? Not necessarily.
The potential problem is that Nvida's share price already reflects a tremendous amount of anticipated growth. Noted valuation expert Aswath Damodaran thinks that Nvidia stock is worth nearly twice what he calculates its fair value is based on compound annual revenue growth of more than 32% over the next five years.
Of course, Nvidia could deliver stronger revenue growth than Damodaran's model assumes. Investors could continue piling into the stock regardless of valuation. Could Nvidia's share price also grow by leaps and bounds well into the future? Perhaps. However, the numbers don't scream "yes" as emphatically as they do for the company's revenue growth.
