VALUATION HIGHLIGHTS

1. Compute & Networking constitutes 70% of the Trefis price estimate for nVIDIA's stock.
2. Graphics constitute 30% of the Trefis price estimate for nVIDIA's stock.

WHAT HAS CHANGED?

Q1 2024 Earnings

Nvidia posted a strong set of Q1 2023 results. Although sales declined by about 13% year-over-year to $7.19 billion, driven by a slowdown in PC sales, this was partly offset by stronger data center sales. The company provided strong guidance for Q2 indicating that revenue could stand at about $11 billion, plus or minus 2%, about 50% ahead of consensus estimates. This is likely due to the strong demand for data center products, amid a surge in interest surrounding artificial intelligence.

Note: Nvidia's FY'23 ended on January 29, 2023. Q1 2024 ended on April 30, 2023.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Nvidia's value that present opportunities for upside or downside to the current Trefis price estimate for Nvidia:

Compute & Networking

• We currently forecast Nvidia's Compute & Networking to increase from $15 billion in FY 2023 to $49 billion by the end of the Trefis forecast period. However, if sales grow to over $60 billion by the end of our review period, driven by stronger demand from data center, automotive and embedded customers, we could see a 10% upside to our price estimate.
  

Graphics

• Graphics Revenue: We currently forecast Nvidia’s Graphics Revenue to increase rapidly to almost $34 billion by the end of the forecast period. However, the company's GPUs have a clear edge over other chips in enabling parallel computing. There is a chance that our estimates may turn out to be conservative. In a scenario where Nvidia's GPU revenue increases to $45 billion by the end of our forecast period, our price estimate can see an upside of over 15%.

For additional details, select a driver above or select a division from the interactive Trefis split for Nvidia at the top of the page.

BUSINESS SUMMARY

While Nvidia is best known for its graphics processing units, which are essentially high-performance processor which generates realistic graphics for gaming on computers, the company expanded to several other large and important computationally intensive areas. Nvidia's GPUs are now much sought after for workloads including artificial intelligence, autonomous driving, as well as cryptocurrency mining. The company is a fabless semiconductor vendor, as it outsources its fabrication to specialized foundries. The company's products are now used in gaming, professional visualization, datacenter, and automotive markets.

SOURCES OF VALUE

We believe that the Compute & Networking segment is the biggest driver of Nvidia's value. The division grew by about 36% in FY'23, emerging Nvdia's biggest business segment. Moreover, we believe the segment has stronger long-term growth potential as well, given that demand is levered to important trends in the computing industry, including the deployment of artificial intelligence capabilities by cloud vendors, the development of autonomous driving technology, and cryptocurrency mining.

KEY TRENDS

Nintendo Sales Aiding Tegra Processors Segment Growth

Nvidia's solid growth for its Tegra Processors segment in the recent quarters can partly be attributed to growth in its SOC modules for consoles, such as Nintendo Switch. Note that Nintendo Switch has been a very successful console, and more than 40 million units have been sold since its launch in 2018. The console uses Nvidia’s SOC modules, and further growth in the demand for consoles will bode well for Nvidia.

Increasing Adoption of Deep Learning Across Multiple Industries to Drive Nvidia's Data Center Growth

GPU-accelerated data centers are expanding in both High-Performance Computing (HPC) and the cloud, driven by the growth of deep learning and Big Data. GPUs have become the accelerator of choice for hyper-scale data centers due to their superior programmability, competitive performance, and power efficiency. The launch of VR can lead to potential growth in the enterprise segment across multiple industries. Nvidia powers IBM's lesson and Facebook’s big source server from Artificial Intelligence (AI). It is present in AI platforms at hyper-scale giants such as Microsoft, Amazon, Alibaba, and Baidu for training as well as real-time influence. Nvidia is engaged with nearly 3,500 companies and organizations in developing deep learning technology.

Expansion in Gaming

Growth in gaming is expected to be fueled by the continued anticipation of new blockbuster games, the rise of eSports, the emergence of new technologies like virtual reality (VR) and Direct X, and the expansion in developing countries. Nvidia’s gaming platform has grown at a >30% rate for the last four years. Since Nvidia has still not fully penetrated the market, it believes there is ample scope for growth.

Expansion of Advanced Driver Assistance Systems (ADAS) & Self-Driving Car Technologies To Drive Growth in the Automotive Segment

The automotive segment is one of the fastest-growing sub-segment of Nvidia’s Compute & Networking business and offers higher gross margins. The company has been working on building its automotive computing platform for over a decade and is in a strong position to leverage this growth. Over FY'23 Automotive and Embedded revenues rose by about 60% to a record $903 million.