Nvidia shares soar following another blowout quarter

Nvidia's (NVDA) earnings report emerged as a pivotal event in this earnings season, representing a litmus test for the ongoing AI-driven market rally. As a key driver and benefactor of the burgeoning AI sector, Nvidia has bolstered bullish sentiment, propelling equities upward even as some investors voice concerns over accelerated valuations outpacing fundamentals. The outcomes of Nvidia's financial disclosures and subsequent market reactions were eagerly anticipated as a decisive moment, potentially tipping the scales in the debate between bullish optimism and valuation skepticism.

NVIDIA reported its earnings for the fourth quarter, exceeding expectations and delivering strong financial performance. The company's Q4 EPS came in at $5.16, surpassing the estimated $4.60 per share. Additionally, revenue for the quarter reached $22.10 billion, beating estimates of $20.41 billion.

The company's Data Center revenue reached a record $18.4 billion, up 409% from a year ago and up 27% sequentially. This growth was driven by higher shipments of the NVIDIA Hopper GPU computing platform used for the training and inference of large language models, recommendation engines, and generative AI applications, along with InfiniBand end-to-end solutions. Data Center revenue for fiscal year 2024 was up 217%. Data Center sales to China declined significantly in the fourth quarter due to U.S. government licensing requirements.

In the fourth quarter, large cloud providers represented more than half of NVIDIA's Data Center revenue, supporting both internal workloads and external customers. Strong demand was driven by enterprise software and consumer internet applications, and multiple industry verticals including automotive, financial services, and healthcare. Customers across industry verticals access NVIDIA AI infrastructure both through the cloud and on-premises. 

Gaming revenue was $2.9 billion, flat sequentially, but up 56% from a year ago, reflecting higher sell-in to partners following the normalization of channel inventory levels and growing demand. Professional Visualization revenue was $463 million, up 11% sequentially and up 105% from a year ago, reflecting higher sell-in to partners following normalization of channel inventory levels. Automotive revenue was $281 million, up 8% sequentially and down 4% from a year ago.

NVIDIA's GAAP and non-GAAP gross margins for the fourth quarter increased significantly from a year ago and sequentially on strong Data Center revenue growth primarily driven by the Hopper GPU computing platform. The gross margins in the fourth quarter also benefited from favorable component costs. Fiscal year GAAP and Non-GAAP gross margin increased, primarily driven by Data Center revenue growth and lower net inventory provisions as a percentage of revenue.

NVIDIA's GAAP operating expenses for the fourth quarter were up 23% from a year ago and up 6% sequentially, primarily due to compensation and benefits, including stock-based compensation, primarily reflecting growth in employees and compensation increases. The sequential increase reflected higher compute and infrastructure investments. Fiscal 2024 GAAP operating expenses were up 2% from a year ago, driven by growth in employees and compensation increases; the comparison was affected by a $1.4 billion acquisition termination charge related to the proposed Arm transaction in the prior year.

NVIDIA's non-GAAP operating expenses for the fourth quarter were up 25% from a year ago and up 9% sequentially, primarily due to growth in employees and compensation increases. The sequential increase reflected higher compute and infrastructure investments. Fiscal year non-GAAP operating expenses were up 13% from a year ago, reflecting growth in employees and compensation increases.

NVIDIA's cash flow from operating activities for the fourth quarter was $11.5 billion, up from $2.2 billion a year ago and $7.3 billion a quarter ago. The sequential and year-on-year increases for the quarter and fiscal year reflect higher revenue. The company paid $6.5 billion in cash taxes in fiscal 2024, up from $1.4 billion in fiscal 2023.

Looking ahead, NVIDIA expects strong performance in the first quarter of fiscal 2025.The company forecasts revenue of $24 billion, plus or minus 2%, exceeding the estimated $21.9 billion. Non-GAAP gross margin is expected to be around 77%, with a variance of 50 basis points. 

NVIDIA's CFO emphasized that accelerated computing and generative AI have reached a tipping point, with demand surging across various industries and regions. The company's Data Center platform continues to be fueled by diverse drivers, including cloud-service providers, GPU-specialized companies, enterprise software, and consumer internet firms. Additionally, vertical industries such as automotive, financial services, and healthcare have reached a multibillion-dollar level of demand. 

NVIDIA's impressive Q4 earnings report reflects the company's strong performance across its key segments. The remarkable growth in Data Center revenue, as well as the Robust performance in Gaming and Professional Visualization, contributed to the exceptional financial results. Moving forward, NVIDIA's positive outlook for the first quarter of fiscal 2025 indicates the company's confidence in its continued success in the AI and computing markets.

Shares of NVDA rallied 7% in reaction to the news. The stock has battled back to the $735 area, regaining nearly all its losses from the previous two sessions. However, now it must contend with staunch resistance at its all time high ($746). It"s ability to break above that level will be crucial for this rally.