Share prices surge after AI giant reports 600% profit explosion and stock split

Top line

Nvidia again shattered Wall Street forecasts in its eagerly anticipated earnings report on Wednesday afternoon, sending shares of the chip designer and top dog in artificial intelligence to record highs.

Nvidia CEO Jensen Huang speaks to a crowd in March.

AFP via Getty Images

Key facts

Nvidia reported earnings per share of $6.12 and sales of $26 billion in the three months ended April 30, which beat analysts’ average forecasts of $5.60 billion and $24.59 billion, according to FactSet.

Nvidia’s earnings and revenue skyrocketed by 628% and 268%, respectively, compared to the comparable period in 2023.

It was Nvidia’s most profitable and highest sales quarter ever, surpassing the quarter ending in January with a record $12.3 billion in net income and $22.1 billion in revenue.

Adding to Nvidia’s many superlatives of financial growth last year was, unsurprisingly, its AI-intensive data center business, which earned $22.6 billion last quarter, up 427% year-over-year and as much as 20 times more than $1.1 billion. segment introduced in 2020.

Nvidia also announced it would conduct a 10-to-1 stock split on June 7, which would reduce its share price from about $950 to $95 while maintaining the company’s overall valuation, allowing investors and employees to purchase the entire stock more cheaply.

Immediately after the launch, Nvidia shares rose 4%, reaching an all-time high during regular trading hours.

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Key background

Nvidia stock was expected to be highly volatile as options traded at around 8% either way following the results. Nvidia, which designs most of the semiconductor chips that power generative AI technology, is arguably the biggest winner of the AI boom over the past two years, with companies such as Amazon and Microsoft among its main customers. Nvidia is the third most valuable company in the world with a market capitalization of around $2.3 trillion, a far cry from its market value of less than $400 billion at the end of 2022. Although slowing due to the somewhat unprecedented financial growth Nvidia has experienced in recent quarters, analysts expect Nvidia to continue growing at a rapid pace, with consensus predicting Nvidia’s revenues will grow by approximately 90% in the fiscal year ending January 2025. , and projected sales of $112 billion will be more than four times higher than in 2022 -23 fiscal year – $27 billion.

Tangent

Nvidia almost single-handedly lifted the US stock market from the doldrums of 2022 to today’s record high. The 490% total return over the last 18 months is significantly better than the average S&P 500 stock return of 13% over that period, with the S&P up more than 36% over that period. Even after Nvidia’s valuation exploded on Wall Street, few people think Nvidia is overvalued, as none of the analysts tracked by FactSet have a sell rating on the stock, with an average price target of $1,039 per share, implying an upside of about 10% compared to Wednesday’s closing price.

A surprising fact

Nvidia grew into a $2 trillion company as its once bread-and-butter video game business fell into a rut. Sales of Nvidia’s gaming division are about 25% lower than two years ago and represent just one-tenth of total revenue last quarter, a far cry from the more than 40% of gaming revenue Nvidia has made in each of the first calendar quarters since 2020. by 2022 . In short, Nvidia has largely shifted its focus away from cheaper, direct-to-consumer graphics processing units (GPUs) often desired by gamers, and instead redirected its attention to providing AI-focused GPUs for large enterprise customers.