NVIDIA Q4’23 Earnings Soar with Data Center Demand, Projects Accelerated Growth

The following is an analysis of all important statements from NVIDIA’s Q4’23 earnings call. We focus on key statements. related to the development during the quarter and future-looking information.

Key statements

During NVIDIA Corporation's Q4 2024 earnings call, several significant business performance, future plans, and announcements were highlighted by key executives:

Financial Overview by Colette Kress, EVP & CFO:

• NVIDIA reported a record revenue of $22.1 billion for Q4, a 22% sequential increase and a 265% year-on-year increase, surpassing the outlook of $20 billion. For the fiscal year 2024, revenue was $60.9 billion, a 126% increase from the previous year.

Data Center Business Performance:

• Data center revenue for the fiscal year 2024 was $47.5 billion, more than tripling from the previous year, driven by the demand for NVIDIA Hopper GPU computing platform and InfiniBand networking. Q4 data center revenue hit a record $18.4 billion, up 27% sequentially and up 409% year-over-year. Demand for Hopper remains very strong, with expectations of the next-generation products being supply-constrained due to overwhelming demand.

Gaming Revenue:

• Gaming revenue for Q4 was $2.87 billion, flat sequentially and up 56% year-on-year, with a fiscal year revenue of $10.45 billion, marking a 15% increase.

Pro Visualization and Automotive:

• Pro Visualization revenue was $463 million in Q4, up 11% sequentially and 105% year-on-year, largely driven by a strong mix of RTX Ada architecture GPUs.

• Automotive revenue was $281 million in Q4, up 8% sequentially but down 4% year-on-year. The fiscal year revenue reached $1.09 billion, crossing the $1 billion mark for the first time, driven by adoption of NVIDIA DRIVE platform by automakers.

Outlook for the Future:

• Total revenue expectation for Q1 is set at $24 billion, with sequential growth anticipated in data center and pro visualization, offset by a seasonal decline in gaming.

• Gross margins for Q1 are expected to be 76.3% GAAP and 77% non-GAAP, benefiting from favorable component costs. For the remainder of the year, gross margins are expected to return to the mid-70s percent range.

• Operating expenses for Q1 are expected to be approximately $3.5 billion (GAAP) and $2.5 billion (non-GAAP), with a mid-30% range growth anticipated for fiscal year 2025.

Software and Services:

• The company's software and services offerings reached an annualized revenue run rate of $1 billion in Q4, signalling strong growth in this area.

China Market:

• Following the U.S. government export control regulations, China data center revenue declined significantly. NVIDIA has started shipping alternatives that don't require a license for the China market, which represented a mid-single digit percentage of data center revenue in Q4, expected to continue in the first quarter.

Jensen Huang, President & CEO, shared insights into the importance of accelerated computing and NVIDIA's role in enabling generative AI, describing NVIDIA AI supercomputers as "AI generation factories."" He also discussed the company's ongoing commitment to fair allocation of products amidst high demand and the strategic moves to compete within the constraints set by U.S. government restrictions on sales to China."

Financial drivers

Analysis of NVIDIA Corporation (NVDA) Q4 2024 Earnings Call: Key Drivers of Profit/Loss Development

The NVIDIA Corporation's Q4 2024 earnings call, led by CEO Jensen Huang and CFO Colette Kress, shed light on several critical factors influencing the company's profit/loss development. Key areas of focus include operational leverage and cost development, with special attention on the company's data center and AI ventures, which have significantly contributed to its financial results.

Revenue Surge and Operational Leverage

• NVIDIA reported a Q4 revenue of $22.1 billion, marking a staggering 265.28% year-over-year growth. This includes a 126% year-over-year increase for the fiscal year 2024, totaling $60.9 billion in revenue. The main driver behind this growth was the significant demand for NVIDIA’s data center solutions, primarily fueled by the adoption of NVIDIA’s Hopper GPU computing platform alongside InfiniBand end-to-end networking.

Data Center Revenue:

• The data center revenue was a standout for the fiscal year 2024, totaling $47.5 billion, more than tripling from the previous year. This growth can be attributed to heightened demand for generative AI and large language models (LLMs) across various industries and use cases. NVIDIA's Hopper architecture products have been instrumental in this sector, even as demand continues to exceed supply.

Generative AI Adoption:

• A significant driver behind NVIDIA’s revenue growth is the broad adoption of generative AI and LLMs across multiple industries from cloud providers to consumer internet companies and enterprises. Noteworthy is that approximately 40% of data center revenue stemmed from AI inference, highlighting NVIDIA's pivotal role in AI's operational deployment.

Geographical Diversification and Supply Improvement:

• NVIDIA has managed to diversify its revenue streams geographically, despite facing regulatory challenges in China. The company adapted by launching alternative products that align with U.S. export controls, aiming to retain a presence in the Chinese market.

Product Innovation and Portfolio Expansion:

• Notable mentions include the launch of H200 and Spectrum-X products, signifying NVIDIA's continuous innovation drive. These new products are expected to be in high demand, further contributing to revenue growth despite initial supply constraints.

Costs and Margins

Gross Margin Expansion:

• NVIDIA achieved a GAAP gross margin of 76% and a non-GAAP gross margin of 76.7% in Q4 FY24. This expansion was primarily due to strong data center growth and favorable component costs. However, a cautionary note for future margins was made, indicating an expected return to the mid-70s percent range beyond Q1 FY25 due to changing component cost benefits.

Operational Expenses:

• Operational expenses saw an increase, reflecting investments in compute and infrastructure as well as in employee growth. This indicates NVIDIA's strategic focus on scaling its operations and research to sustain long-term growth.

NVIDIA Corporation's profit development in Q4 2024 has been predominantly driven by the company's strategic positioning in the data center and AI markets. The surge in demand for NVIDIA’s Hopper GPU computing platform and related AI technologies across diverse industries and geographic regions has significantly increased revenue. Additionally, operational leverage through product innovation and favorable gross margins has contributed to profitability. However, the company acknowledges potential challenges and adjustments in gross margins and operational costs moving forward. This blend of revenue growth drivers against a backdrop of controlled costs and strategic investments underscores NVIDIA's profit development dynamics during the period."

Q&A highlights

During NVIDIA Corporation’s Q4 2024 earnings call, several analysts posed important questions focusing on different aspects of NVIDIA's business and forward-looking expectations. Here's a concise summary of the Q&A session:

Toshiya Hari (Goldman Sachs) asked about expectations for calendar 2024 and 2025 in the data center business, touching on new areas like software and sovereign AI, and queried on NVIDIA's potential participation in the ASIC market.

• Jensen Huang responded that the conditions are excellent for continued growth due to the industry-wide transition from general to accelerated computing and the emergence of generative AI. He emphasized the significant demand across various industries and regions, the concept of AI factories, and NVIDIA's strategy to compete within US government restrictions for China.

Joe Moore (Morgan Stanley) inquired about the 40% of revenue coming from inference, seeking insights on how this has changed over time and the measurement process.

• Jensen Huang clarified that the estimate might be understated, highlighting the significant growth in inference due to the adoption in recommender systems and the proliferation of generative AI models.

Stacy Rasgon (Bernstein Research) asked about supply constraints for the next generation of products and when these might ease.

• Jensen Huang explained that supply is improving overall, but new product ramps naturally lead to constraints. He remained optimistic about improving the situation while acknowledging the challenge.

Matt Ramsay (TD Cowen) explored NVIDIA's approach to product allocation among different customers and industries, given the demand exceeding supply.

• Colette Kress addressed how NVIDIA works with customers on forward-looking demands and allocations. Jensen Huang emphasized fair allocation practices and linking partners with end markets to drive ecosystem growth.

Timothy Arcuri (UBS) questioned about the conversion of backlog into revenue, particularly noting the inventory purchase commitments and supply status.

• Colette Kress explained that NVIDIA’s commitments and prepaids vary in length and are strategically placed for both short and long-term needs, aiming to optimize supply allocation for immediate shipping to customers.

Ben Reitzes (Melius Research) sought clarification on the expected return of gross margins to the mid-70s percent range.

• Colette Kress attributed the return to normal gross margins to a mix of factors including the end of favorable component costs seen in Q4 and Q1, returning to typical levels afterward.

C.J. Muse (Cantor Fitzgerald) dove into how NVIDIA's significant improvements in GPU compute might affect the long-term usability of NVIDIA investments by customers.

• Jensen Huang highlighted the duality of NVIDIA's approach: bringing new software capabilities to installed bases while making breakthroughs with new products, ensuring continued utility and performance improvements.

Aaron Rakers (Wells Fargo) inquired about NVIDIA's strategy and product offerings in China given the regulatory environment.

• Jensen Huang stated NVIDIA had adjusted its product offerings to comply with U.S. government restrictions while aiming to compete effectively in the Chinese market.

Harsh Kumar (Piper Sandler) asked for details about the software business reaching a $1 billion run rate, seeking insights into its components and growth drivers.

• Jensen Huang emphasized the necessity of software for accelerated computing and outlined NVIDIA AI Enterprise as a key product, indicating its strategic role and significant growth potential.