Nvidia Shows No Signs of Slowing Down; FVE up to $200

Wide-moat Nvidia NVDA reported impressive fourth-quarter results with revenue ahead of management’s guidance. Gaming and data center segments were the primary growth drivers, and we expect positive momentum in each end-market to persist in the coming quarters. We are raising our fair value estimate to $200 per share from $187, as we incorporate stronger datacenter growth. While we are positive on Nvidia's datacenter prospects, we think current share prices do not account for competition from the likes of AMD, Intel, or major cloud customers themselves.

Fourth-quarter sales grew 53% year over year to $7.6 billion, with gaming and datacenter revenue up 37% and 71%, respectively. During the quarter, Nvidia achieved record desktop gaming sales. While we expect gaming demand to remain robust, we believe new GPUs from AMD and Intel could help improve the ongoing GPU shortage, which may negatively impact Nvidia's ASPs over time. In the datacenter segment, hyperscale and cloud sales more than doubled year over year. We see no signs of the firm's datacenter business slowing, with Metaverse, AI, and other cloud investments likely to remain elevated. For fiscal 2022 (Nvidia's calendar 2021), total sales grew 61% year over year, with gaming and datacenter revenue up 61% and 58%, respectively, year over year. We estimate the datacenter segment will grow at least 40% in fiscal 2023. During the quarter, gross margins expanded 20 basis points sequentially to 65.4%, thanks to a richer mix.

Management expects first-quarter sales to be at a midpoint of $8.1 billion, which implies year-over-year growth of 43% and sequential growth of 6%. The primary driver of the sequential growth is the datacenter segment, which we think is likely to increase each quarter over the course of 2022 as customers such as Microsoft, Amazon, and Alphabet invest in Nvidia's A100 GPUs for both internal and external workloads such as natural language processing and recommendation engines.

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