Nvidia (NASDAQ:NVDA) stock rose around 6% in post-market trading on Wednesday (22 May) as the AI-enabling chip giant released its results for the first quarter. Clearly, the results were good. The company also announced a 10-for-1 stock split, meaning the shares will become more accessible.
Let’s take a closer look.
Nvidia benefits from AI obsession
US stocks, and notably tech shares, have performed extremely well over the past 12 months. AI is the buzzword and investors have been scrambling for more exposure to the booming sector. Nvidia, with its AI-enabling chips, is central to this.
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It has a track record of beating market expectations. Wednesday’s report marks its ninth consecutive earnings beat. Analysts were bullish in the lead-up to Wednesday’s results and there were 35 positive revisions with only two negative ones in the 90 days leading up to it.
Yet the market was notably muted on Wednesday as investors held back to see what Jensen Huang’s company had in store. Nvidia results are undoubtedly the most important event of earnings season.
AI is booming
Nvidia’s results tell us that AI is still booming. The company’s non-GAAP earnings per share (EPS) of $6.12 beat analysts’ estimate by $0.54. Revenue of $26bn beat estimates by $1.45bn. Key to this was revenue from the company’s data centre business. Data centre revenue came in at $22.6bn, up 23% from Q4 2024 and up 427% from a year ago.
Data centres are the cornerstone of the AI revolution. Graphic processing units (GPUs) — originally built by Nvidia for the gaming sector — use 10-15 times more power than traditional central processing units (CPUs). Satisfying these power-hungry GPUs requires huge upgrades in data centre infrastructure.
However, there are always risks, of course, and competition is one of them. Big tech companies like Meta are designing their own chips. It’s also the case that China is investing huge resources in the semiconductor space. It’s not inconceivable that Chinese companies could catch up. But for the foreseeable future, at least, Nvidia remains the dominant force.
Key takeaways
So what else did we learn from the report?
- AI isn’t slowing down. Revenue from the data centre segment has jumped from $4.2bn to $22.6bn in Q1. The growth rate was strong in each quarter.
- Nvidia will get more affordable. In the earnings call, Nvidia announced that on 7 June, it would undertake a 10-for-1 stock split. One stock would no longer be worth $1,000 but $100, making it more accessible to retail investors.
- It’s innovating at pace. Huang said the company is working on a “one-year rhythm” — it will produce new AI chips every year rather than every two years — and that after Blackwell — its latest chip architecture — there would be other Blackwells coming.
The bottom line
Many investors will see a stock that’s up 2,500% over five years and be understandably wary. However, I don’t see that as an issue. It trades at elevated multiples versus FTSE 100 stocks but offers growth far above anything we’d find on the UK index. Earnings rises are expected to average 35% annually over the next three to five years.
