NVIDIA Corporation (NASDAQ:NVDA): Powering the Next Industrial Revolution

Published on September 24, 2024 | Ticker: NVDA

NVIDIA Corporation (NASDAQ:NVDA) is at the forefront of a major transformation in the technology industry. The company's innovative products and solutions are driving the next industrial revolution, as it partners with companies and countries to shift the trillion-dollar installed base of traditional data centers to accelerated computing and build a new type of data center - AI factories - to produce a new commodity: artificial intelligence.

Financials

In fiscal year 2024, NVIDIA reported annual revenue of $60.92 billion, up from $47.42 billion in the prior year. Net income for the year reached $29.76 billion, compared to $18.32 billion in the previous year. The company's annual operating cash flow was $28.09 billion, and free cash flow was $27.02 billion.

NVIDIA's two operating segments, Compute & Networking and Graphics, have both experienced significant growth. In the first quarter of fiscal year 2025, Compute & Networking revenue was $22.68 billion, up 408% year-over-year, while Graphics revenue was $3.37 billion, up 23% year-over-year. The company's overall revenue in the first quarter was $26.04 billion, up 262% from the same period a year ago.

Compute & Networking Segment

The Compute & Networking segment, which includes the company's data center accelerated computing platform, networking, and automotive solutions, has been the primary driver of NVIDIA's growth. Data Center revenue in the first quarter was $22.56 billion, up 427% year-over-year, driven by strong demand for the NVIDIA Hopper GPU computing platform. Compute GPU revenue grew more than 5x, and Networking revenue more than 3x, from the same period a year ago.

The strong sequential and year-over-year growth in Data Center was driven by all customer types, led by enterprise and consumer internet companies. Large cloud providers continue to drive strong growth as they deploy and ramp NVIDIA AI infrastructure at scale, representing the mid-40s as a percentage of Data Center revenue. NVIDIA's rich software stack and ecosystem, as well as its tight integration with cloud providers, make it easy for end customers to get up and running on NVIDIA GPU instances in the public cloud.

Hopper GPU Architecture

NVIDIA's Hopper GPU architecture has been a key driver of the company's Data Center growth. Demand for Hopper during the first quarter continued to increase, and the company started sampling the H200 in the quarter, with shipments on track for the second quarter. The first H200 system was delivered to OpenAI and powered their recent GPT-4o demos. H200 nearly doubles the inference performance of H100, delivering significant value for production deployments.

While supply for H100 has improved, NVIDIA is still constrained on H200. At the same time, the company's next-generation data center architecture, Blackwell, is in full production, and NVIDIA plans to ship customer samples in the second quarter, with customer shipments ramping in the second half of the fiscal year. Demand for H200 and Blackwell is well ahead of supply, and NVIDIA expects demand may exceed supply well into next year.

Blackwell Platform

NVIDIA's Blackwell platform is designed to support data centers universally, from hyperscale to enterprise, training to inference, x86 to Grace CPUs, Ethernet to InfiniBand networking, and air cooling to liquid cooling. The Blackwell platform includes the fifth-generation NVLink with a multi-GPU spine and new InfiniBand and Ethernet switches, the X800 series, designed for trillion-parameter scale AI. NVIDIA announced that Blackwell will be available in over 100 OEM and ODM systems at launch, more than double the number of Hopper's launch, representing every major computer maker in the world.

In addition to Blackwell, NVIDIA introduced NVIDIA Inference Microservices (NIM), a new software product that provides secure and performance-optimized containers powered by NVIDIA CUDA acceleration for a broad range of use cases, including large language models for text, speech, imaging, vision, robotics, genomics, and digital biology. NIMs will be offered as part of NVIDIA's AI enterprise software platform for production deployment in the cloud or on-premises.

Graphics Segment

NVIDIA's Graphics segment, which includes GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service, and solutions for gaming platforms, Quadro/NVIDIA RTX GPUs for enterprise workstation graphics, and automotive platforms, among others, also saw strong performance in the first quarter. Gaming revenue was $2.65 billion, up 18% year-over-year, and Professional Visualization revenue was $427 million, up 45% year-over-year.

Geographical Diversification

Geographically, NVIDIA's revenue continues to diversify as countries around the world invest in Sovereign AI capabilities. The company believes Sovereign AI revenue can approach the high single-digit billions this year, as nations build up domestic computing capacity through various models, including procuring and operating Sovereign AI clouds in collaboration with state-owned telecommunication providers or utilities, or sponsoring local cloud partners to provide a shared AI computing platform for public and private sector use.

Outlook

NVIDIA's strong financial performance is a testament to the company's technological leadership and the growing importance of AI and accelerated computing across a wide range of industries. The company's ability to offer end-to-end compute to networking technologies, full-stack software, AI expertise, and a rich ecosystem of partners and customers positions it well to capitalize on the next wave of growth in the AI and computing markets.

Looking ahead, NVIDIA expects total revenue for the second quarter of fiscal year 2025 to be $28 billion, plus or minus 2%, with sequential growth in all market platforms. The company also expects GAAP and non-GAAP gross margins to be 74.8% and 75.5%, respectively, plus or minus 50 basis points, and GAAP and non-GAAP operating expenses to be approximately $4 billion and $2.8 billion, respectively. For the full year, NVIDIA expects gross margins to be in the mid-70s percent range, and operating expenses to grow in the low 40% range.

Conclusion

NVIDIA's strong financial performance, innovative product roadmap, and leadership in the AI and accelerated computing markets position the company well to continue driving the next industrial revolution. As the world shifts towards a new era of computing, where AI-powered intelligence and token generation become the new norm, NVIDIA is poised to be at the forefront of this transformative change.

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