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Another Blockbuster Quarter for Nvidia with Strong AI Tailwinds

Semiconductor giant Nvidia (NVDA: $1,040) had another blockbuster quarterly performance in the first quarter, reporting results last night after the close. The company did $26 billion in revenue, up by a mammoth 262% YoY (practically quadruple) compared to $7.2 billion a year ago. The company produced a profit of $15.2 billion, or $6.12 per share, up from $2.7 billion, or $1.09, (6X), with a beat on estimates on the top and bottom lines, coupled with a strong guidance for the rest of the year 2024. Profits were amazing. We’ll say it another way: $15 billion in profits on $26 billion of revenue. AFTER TAX. (This is a higher percentage than Apple or Microsoft.)

The results drove the stock, which had already witnessed a meteoric rise last year and so far this year, past the $1,000 mark. Driven by unprecedented demand for its graphics processing units (GPUs) from the burgeoning global Artificial Intelligence space, Nvidia believes that supply is now its only constraint, and expects demand for its best-in-class AI chips to continuously outstrip supply for the foreseeable future.

As expected, Nvidia’s data center segment led the way with $22.6 billion in revenue, up 23% from the prior quarter, and a phenomenal 427% from the prior year. The automotive and robotics segment posted $330 million in revenue, up 11% YoY, followed by its gaming and visualization businesses at $2.6 billion and $430 million, up 18% and 45% on a YoY basis, respectively, driven by new product launches.

The company continues to see strong demand from tech giants Google, Microsoft, Amazon, Meta, OpenAI, and others, as the trillion-dollar traditional data center industry shifts towards accelerated computing, to power the new generation of artificial intelligence applications. To give you an example of how big demand is, just Meta Platform’s new Lama 3 generative AI, which was announced during the quarter, involved 24,000 of Nvidia’s H100 GPUs.

The new generation Blackwell platform, primed for the trillion-parameter-scale generative AI market, is now in full swing, delivering to partners and customers all across the world, and is set to contribute substantially to top- and bottom-line growth during the year. This comes as the company announces another major chip that is set to be launched next year, which caused concerns about an ‘air pocket.’ An air pocket refers to the phenomenon when a piece of technology fails to sell well in anticipation of the newest tech that is just around the corner. Nvidia, however, quelled concerns regarding this, citing the ‘backwards compatibility’ of the new Blackwell and older Hopper systems. The company constantly goes above and beyond when it comes to making transitions easy for its customers, both big and small.

Nvidia’s next big driver of growth is expected to be sovereign AI, which refers to sovereign nations building up their AI infrastructures. More great news for investors includes a 10-to-1 stock split, to take effect June 6th, in addition to the nearly $7.7 billion in buybacks during the quarter, made possible by $26 billion in cash reserves, $11 billion in debt, and an incredible $28 billion in cash flow. Many Wall Street analyst firms have raised their targets this morning. Loop Capital is looking at $1,200. Same with TD Cowan. Benchmark is at $1,350. The current “leader” is Cantor Fitzgerald that raised its target from $1,200 to $1,400. Our Target was $1,200 with a Sell Price of $700. We’re raising our Target today to $1,401. (We don’t want to be outflanked by anyone on Wall Street!) Seriously, though, we have been and are big believers in the company. We’ve been saying for a year now, that AI is driving the bull market, and Nvidia is leading the AI revolution. We highly recommend you take a position, or increase your position in this company, even as it sets a new all-time high today. Do NOT be afraid to buy this stock at new all-time highs.

Our Sell Price is $700 and we’re going to leave it here, as the volatility of the stocks in this AI world is off the charts. Super Micro Computers (SMCI) too.

Good investing!

Netflix Blows Away the Quarter

Streaming giant Netflix (NFLX: $403, up $57, up 16%) posted a remarkable third quarter performance last night, reporting $8.5 billion in revenues, up 7% YoY, compared to $7.9 billion a year ago. The company posted a profit of $1.7 billion, or $3.73 per share, against $1.4 billion, or $3.10, in addition to a beat on estimates at the top and bottom lines, resulting in a strong 14% post-market rally in the stock following the results.

During the quarter, the company posted strong metrics across the board, starting with its new paid subscribers at 9 million, bringing its total to 250 million. This is largely the result of its crackdown on account sharing, which is now in full swing. Netflix has further rolled out its $6.99 ad-supported pricing tier in select regions worldwide, where these plans now account for over 30% of new subscriber additions.

In addition to this, the platform’s engagement metrics so far this year are off the charts. According to Nielsen, Netflix hosted the most-watched original series for 37 of the 38 weeks this year, and the most-watched movie for 31 out of the 38. Its share of total TV screen time within the US now stands at 8%, far ahead of other competitors, and only lagging behind YouTube, which has taken a slight lead at 9%.

With the success of content such as One Piece, The Witcher, and Top Boy, Netflix has officially cracked the originals game and continues to give traditional Hollywood studios a run for their money. While licensed content will continue to play an outsized role, originals help unlock additional monetization opportunities such as theatrical releases, product placements, and merchandising.

Netflix expects a significant jump in its free cash flow at $6.5 billion, resulting in lower content expenses. In fact, they expect to spend $14 billion on content next year, down from $17 billion which will surely increase cash flow. This has prompted the company to increase its buyback authorizations by $10 billion, creating plenty of support for the stock. The company ended the quarter with $8.6 billion in cash, $17 billion in debt, and $4.6 billion in cash flow. The stock has been hit hard these past five weeks, for conceivably no good reason, as this quarter shattered expectations. This company remains one of our favorites. Our Target is $590 and our Sell Price is: We would never sell Netflix. Yes, the Target is high. But yes, the stock will get there. 2024? 2025? It WILL get there. The competition is shattered and will have to consolidate, with Netflix the clear winner.

 

EQUITY RESIDENTIAL (EQR) ADDED TO STOCKS FOR SUCCESS

June 16, 2016

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