Wall Street has a new queen - Nvidia. Dubbed by the American market as "the Taylor Swift of investors" at this moment, the chip manufacturer, standing at the forefront of the artificial intelligence (AI) revolution, stunned analysts, investors, and markets on Wednesday night when it released its financial reports for the fourth quarter of 2023 and the entire year.
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Nnvidia presented revenues of $22.1 billion for the quarter - 3.6 times compared to revenues of $6 billion in the last quarter of 2022. Net income, not based on generally accepted accounting principles (non-GAAP) - excluding various items like employee stock compensation - stood at $12.8 billion, 6.1 times compared to net income in the corresponding period, which amounted to $2.1 billion.
Even compared to the previous year's third quarter, it's a growth of 20%-30%. Not surprising for a company that had revenues at a high two-digit billion-dollar figure in the previous quarter.
In its summary for 2023, Nvidia presented revenues of nearly $61 billion, more than double compared to the revenues in 2022, which amounted to around $27 billion. The non-GAAP net income surged close to fourfold, standing at $32.3 billion.
The results, understandably, exceeded analysts' expectations, and the company is showing a growth rate rarely seen on Wall Street. Nvidia's profitability ratios are exceptional by all measures. The net profit margin from revenues stood at about 50% annually and almost 58% quarterly. In 2022 it had a profit margin of only 10%, and it's also an outlier in the industry. For example, Intel, in its best years, had a profit margin of around 30%.
So, how did this happen? In 2023, artificial intelligence (AI) burst onto the stage with OpenAI's Chat GPT and a series of other developments utilizing this technology, all needing advanced chips, which Nvidia, a dominate player in the field, manufactures.
The unprecedented demand for chips propelled Nvidia's results and led many players to stock up in advance to ensure they wouldn't be left behind. For example, at the beginning of the year, Meta's (formerly Facebook) CEO Mark Zuckerberg announced that the company, under his leadership, intends to acquire more than 350,000 H100 AI chips from Nvidia, amounting to a multi-billion-dollar investment. And Zuckerberg was not alone.
The phenomenal results of the company, led by founder Jensen Huang, caused its stock to surge by 16% on Thursday, adding $277 billion to its market value in a single day—the largest daily increase in history. Nvidia also claimed the title as leader in the field from Intel. The company released its reports earlier this month, boosting its value by nearly $197 billion in one day.
For perspective, Nvidia's increase in market value in terms of Israeli shekels is greater than the combined market value of all companies traded on the Tel Aviv Stock Exchange. Dan Ives from Wedbush dubbed Jensen "the AI maestro."
"This quarterly report reverberated around the world like nothing else. It's the most important report in years. And this AI party is just getting started. It's the Taylor Swift moment of tech markets. Right now, Nvidia is the only game in town," he told Bloomberg.
According to Byron Deeter from Bessemer Venture Partners, Nvidia's growth, even against the backdrop of AI's rapid expansion, is impressive to watch. "Companies looking to operate in the AI space will continue to rely on Nvidia chips. Simply put, artificial intelligence is the next hardware frontier. It's the next horizon in cloud computing," He told CNBC. "It will generate substantial demand for years to come. These software companies typically don't build their hardware, so they depend on hardware suppliers on a large scale to drive this revolution. Therefore, the curve of demand in the private sector, a leading indicator for the demand for these chips, only grows."
Israelis also benefit from the growth
The impressive surge in Nvidia's stock value brings benefits not only globally but also to a significant number of Israelis. Nvidia acquired Israeli chip manufacturer Mellanox in 2019 for $6.9 billion, turning Mellanox employees into Nvidia employees. Nvidia established its development center in Israel on the foundations of Mellanox, with many of the 3,000 employees receiving stock options over the years. When Nvidia acquired Mellanox, one of Israel's largest exits, the company was valued at around $530 billion. Today, Nvidia's value is approximately $2 trillion.
Nvidia's bold market push poses a challenge on two fronts: competing with big tech giants and attracting investment managers to formulate investment strategies. It is not the only tech giant participating in the AI revolution. Microsoft owns 49% of OpenAI and is already integrating its technology into its products, as is Meta.
Both, with a focus on Meta, have presented strong reports. Alongside Nvidia's report, which outshone the rest and many in the market already estimate that the valuation of these companies, traded at roughly twice the profit multiples of S&P 500 companies on average, is not particularly high anymore. because of the potential for significant earnings growth fueled by the artificial intelligence revolution. Nvidia forecasts revenues of around $24 billion in the current quarter, $2 billion more than the previous one.
Furthermore, Nvidia and its high-end club of companies are pushing markets upwards, instilling confidence among analysts that markets can continue to rise even if the Federal Reserve delays interest rate hikes despite falling inflation. While many initially anticipated a rate cut as early as March, futures markets now predict the first cut in May or June. On the surface, this should dampen stock markets. However, perhaps Nvidia and its cohorts hold even more sway than Fed Chair Jerome Powell in determining market direction.