TAIPEI, TAIWAN – 2023/06/01: Jensen Huang, President of NVIDIA holding the Grace hopper superchip … (+)
About a year ago, Nvidia released the earnings report heard around the world. Since then, shares of the chip design giant have soared 248%.
On May 23, Nvidia fulfilled my April prediction that a strong quarterly report could propel the company’s stock price past $1,000 per share.
Nvidia – which outsources chip manufacturing – not only beat expectations and raised its guidance, but the company also announced a 10-for-1 stock split, repurchased billions of shares and significantly increased its dividend.
When the stock split drops Nvidia’s stock to around $100 per share, I expect the company to maintain the strong growth that has sent its stock price soaring. Here are three reasons why its shares could exceed $1,000 again after the split:
- Nvidia’s excellent performance and outlook.
- Nvidia’s stream of successful growth investments.
- The leadership of CEO Jensen Huang – who could also be Nvidia’s biggest investment risk if he leaves without a more capable successor.
Nvidia’s strong first quarter performance and outlook
Nvidia faced an exceptionally high growth hurdle as it approached the anniversary of its stunning Q1 2023 earnings report – presenting a growth forecast 54% higher than expected for Q2 2023.
Below are the top investor expectations for Nvidia in the most recent quarter, according to my April 2024 report. Forbes post, and to what extent Nvidia exceeded these goals:
- First Quarter Fiscal 2025 Net Sales Forecast: $24.22 billion — 237% more than the previous year, according to Yahoo! Finance. Nvidia exceeded that goal by $1.78 billion, generating $26.04 billion In incomeaccording to CNBC.
- Gross margin forecast for the first quarter of fiscal 2025: 77.03% — 13 percentage points more than the previous year, Yahoo! Finance note. Nvidia reported a gross margin of 78.4% for the quarter, 1.37 percentage points above consensus, a company statement said.
- Adjusted earnings per share forecast for the first quarter of fiscal 2025: $5.50 — 405% more than the previous year, according to CNBC. Nvidia reported adjusted EPS of $6.12, beating forecasts of 62 cents per share, CNBC reported.
- Second quarter fiscal 2025 revenue forecast: $28 billion — 107.4% above second quarter 2023 revenue and above analyst expectations, the Newspaper wrote.
Nvidia also decided to salute investors like Warren Buffett who love stock buybacks and dividends.
To that end, the chip designer announced a 10-for-1 stock split effective June 7, repurchased $7.7 billion worth of company stock, and more than doubled its dividend from four cents to 10 cents based on the current number of shares, noted the Wall Street Journal.
“We are fundamentally changing how computing works and what computers can do,” Nvidia CEO Jensen Huang said on a conference call with analysts. “The next industrial revolution has begun. »
Nvidia’s growth investments
The most important question a CEO must answer is: Where is future growth going? In my book, Disciplined growth strategies, I have described a canvas on which leaders can paint their future growth trajectories. This canvas consists of five growth dimensions: new or existing customer groups, products, geographies, capabilities and culture.
In high-tech markets, business leaders must bet wisely on future growth opportunities before their rivals beat them to it. Such bets are particularly vital because the life cycles of technology products are short and competitors are quick to copy innovations.
For Nvidia, the key dimensions of growth are customer group and product. Here are the company’s main bets on each dimension:
- Customer group: data centers. Nvidia saw a 427% increase in revenue from its data centers – what CEO Jensen Huang calls AI factories, according to the New York Times
New York Times
Amazon
- Products: H100, Blackwell, and InfinBand. Nvidia’s most important AI product is the H100, a GPU used to train large language models. As I wrote in April, Nvidia plans to launch a successor – Blackwell – which Huang said would generate “a lot of revenue” for Nvidia this year, according to the company’s first-quarter investment conference call. Nvidia also reported more than tripling revenue, to $3.2 billion, from the company’s InfiniBand networking components, which companies value more when building “clusters of tens of thousands of chips that need be connected,” noted CNBC.
Under Huang’s leadership, over the past 15 years, Nvidia’s share of the AI chip industry has reached between 80% and 95%, I wrote in my February 2024 article. Forbes article.
As I wrote then, signs of Nvidia’s market power include:
- Strong willingness to pay. Customers are willing to pay a higher price and wait more than a year to get Nvidia chips.
- The time saving makes up for the high price. Nvidia chips are expensive; However, Nvidia claims that they save companies time when training their large language models, which more than makes up for the extra price.
- Developers rely first on Nvidia. Competitors copying Nvidia hardware are still racing to catch up. The most important reason why designers choose Nvidia is the 2006 launch and continued improvement of CUDA, the company’s GPU programming software.
The biggest risk to Nvidia’s continued success
The biggest risk to Nvidia’s continued stock rise is the company’s dependence on Huang – who at some point will no longer be the company’s CEO.
As I described in my upcoming book, Brain rushHuang is the rare CEO – representing less than 0.4% of founders – who can turn his idea into a public company worth billions of dollars – or in Nvidia’s case, trillions.
He has done an excellent job in five of the six key leadership tasks that set these leaders apart:
- Fueling Cognitive Hunger – which means that Huang has not lost his desire to learn new things and maintains a healthy paranoia.
- Solve the right problem — Nvidia provides world-class solutions to address unmet customer needs.
- Win and retain customers — The AI chip designer has excelled at winning over customers and selling them more of the company’s products.
- Adapt to changing head and tailwinds — Nvidia quickly shifted its focus on gaming to blockchain and then to generative AI as it saw further growth.
- Invest in new growth opportunities — Nvidia has built new products and protected their value from competitors through software and partnerships.
The final leadership task is to groom the next CEO. Is Huang developing a successor who could do the job of CEO as well, or better, than he does now? TechNewsWorld argued that Huang would continue as CEO for a decade and gradually replace himself with “digital Jensen Huangs.” Really?
Officially, Nvidia considers succession planning important. For example, Nvidia runs a management development and exposure program involving more than “60 senior executives working directly with the CEO to execute business strategies,” according to Nvidia’s 2024 annual report. Nvidia also offers executive development programs that include “training courses, mentoring, peer coaching, and ongoing feedback.”
How Nvidia’s Post-Split Stock Could Grow 10x
In the year since Nvidia’s boffo May 2023 quarterly report, the company’s shares have risen 248%.
Nvidia stock – after a 10-to-1 split in early June – could rise from $100 to $1,000 by 2026. This optimistic scenario assumes that Nvidia continues to beat growth expectations and raise its guidance, which would result in a 248% annual increase in the company’s stock price. the next two years.
The optimism is certainly justified, according to one analyst. “I say it’s the most important company in the world when it comes to innovation,” said Jim Roppel, founder of The Roppel Report. Investor Business Daily.
“Nvidia has successfully moved from one technology trend to another, starting with video games, then moving to things like automotive applications and now generative AI,” he added.
Productivity gains from generative AI could curb inflation and keep demand strong for Nvidia products. “The great innovation cycle is healthy and thriving,” he said. IBD. “I really think this goose that lays the golden eggs is tearing up. The goose that lays the golden eggs is working overtime here.
Another analyst is less optimistic. Nvidia stock could fall unless it beats expectations by at least $1.5 billion in the coming quarters, Susquehanna analyst Christopher Rolland wrote in a May 20 client note, reported THE Newspaper.
Another risk for investors? “Competitor developments, including internal chip efforts at its own largest customers,” Newspaper note.
One day, the Nvidia bears will be right. That day could be a decade away.