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The stock price of NVIDIA, which is one of the strongest performing giant technology companies in the US stock market this year, has risen almost 50% since the beginning of the year, and at one point, NVIDIA's price-earnings ratio (PER) evaluation reached close to 100 times.
The significant rise in NVIDIA's stock price may reflect, to some extent, the market's expectations for new financial reports. NVIDIA plans to release its quarterly report for the fourth quarter of fiscal year 2024 after the end of trading in the US stock market on February 21.
So how should we look at NVIDIA's financial reports? What factors could have a significant impact on short-term stock prices? Let's take a look at the 4 main focuses.
1. Comparison of results and guidance (company forecasts) and analyst predictions
Previously, after the semiconductor chip industry had a downward cycle of about 2 years, the sector came out of the slump due to demand for computing power chips fueled by the generative AI boom. NVIDIA, a leader in the computing power chip segment, may have the greatest potential for rapid business growth and performance growth.
Therefore, predictions made by Wall Street analysts may deviate significantly from NVIDIA's actual performance. With our app, you can see how NVIDIA's performance is predicted in advance by analysts. If actual performance significantly exceeds prior forecasts, it will be a major boost to short-term stock prices. Conversely, if actual performance falls short of expectations, it could create short-term downward pressure.
Even when NVIDIA's earnings are almost as expected, the market has high expectations for NVIDIA. Since these predictions have already been factored into stock prices, there is a possibility that they will be viewed as slightly insufficient. In order to further boost stock prices, simply being as expected may not be enough, and further excellence may be required. So what happens when NVIDIA's predictions slightly exceed expectations?
For example, in NVIDIA's financial results report for the third quarter of fiscal year 2024, profits reached $18.120 billion, exceeding market expectations of $16,110 billion. Earnings per share were also $3.71, which greatly exceeded expectations. According to the company's forecast, NVIDIA's revenue forecast for the third quarter was approximately $20 billion, which once again exceeded expectations. However, the market probably didn't find NVIDIA's report shocking enough, so the stock price fell the day after the announcement.
Therefore, with regard to NVIDIA's latest quarterly financial results, it will be necessary to confirm whether NVIDIA can produce results that satisfy the market. The focus should be on comparing NVIDIA's actual performance with Wall Street analysts' predictions.
2. Data center revenue
In the past, NVIDIA's data center business was a major growth engine, yet its revenue was only 37% in the first quarter of fiscal year 2021. However, in just 3 years, that revenue reached around 60% in the second quarter of fiscal year 2024. With the explosive growth of the artificial intelligence industry, NVIDIA, which was an important supplier of computing chips such as GPUs, is expected to grow even larger in the data center business.
In the first two quarters of fiscal year 2024, NVIDIA's data center business successfully recovered from its previous downward trend and achieved double-digit growth both year-on-year and year-over-year. NVIDIA's third quarter earnings report is also an important fiscal period that tests real demand for NVIDIA's computing power chips.
According to NVIDIA's financial results report data for the third quarter, data center revenue was approximately $14.51 billion, up 278.7% from the same period last year and 40.6% from the quarter, continuing to be the main driver of revenue growth, reaching a record high level of 80.1% of total revenue.
As for NVIDIA's future financial reports, it is necessary to continue to focus on the acceleration of data center business growth.
3. stock status
Other than income statement performancestock statusIt is a very important index for measuring cyclical changes and growth expectations in industries with cyclical supply and demand fluctuations, such as the semiconductor chip industry. When industry demand declines and there is an oversupply,The inventory level of enterprises has risen, and sales pressure to sell inventory has increasedIt puts downward pressure on stock prices. Conversely, when the cycle is reversed and demand improves, a company's inventory level rapidly declines and sales prospects improve.
What is an appropriate measure of changes in inventory levelsEarnings inventory ratioinventory/revenue),The higher this ratio, the higher the level of inventory, and the greater the sales pressureIt shows. For example, from the fourth quarter of fiscal year 2022, NVIDIA's inventory/earnings ratio began to rise continuously, and stock prices also began to drop significantly from that point on.
During the first to third quarters of fiscal year 2024, NVIDIA returned to a state of growth, and significant progress was made in reducing inventory. The inventory to profit ratio fell from 85.3% at the end of fiscal year 23 to 26.4% in the third quarter of fiscal year 2024, reaching a historically low level. Let's keep watching to see if NVIDIA's inventory to revenue ratio can be maintained at a low level in the future.
4. profitable
Whether NVIDIA's profitability can quickly recover in the process of reversing and rising supply and demand is also one of the key points that the market is paying a lot of attention to.
In terms of gross profit margin, over the past few quarters, as NVIDIA gradually emerged from the cyclical bottom, its gross profit margin level rose, reaching a high level of 70% in the second quarter of fiscal year 2024. In the third quarter of fiscal year 2024, due to strong demand for computing power chips such as GPUs and NVIDIA's strong bargaining power during the same period, its gross profit margin improved further and reached 74%.
Looking at net profit margins, NVIDIA has shown a rapid upward trend over the past few quarters, reaching 45.8% in the second quarter of fiscal year 2024. In the third quarter of the same fiscal year, NVIDIA's net profit margin rose even more rapidly, reaching a historically high level of 51%. As for the upcoming fourth quarter financial report, let's keep an eye on whether NVIDIA's net profit margin remains at a record high level.
In the early stages of a business cycle reversal, NVIDIA's performance responsiveness is extremely high, and its financial results have a major impact on short-term stock prices. We need to focus on 4 key points.
Firstly,Comparison of actual performance and forecast values with corporate guidanceThat's it. The gap between expectations and reality will have a major impact on NVIDIA's short-term stock price.
Second, NVIDIA'sThe profit status of the data center businessThat's it. This business is a top priority for NVIDIA, and it should be watched to see if its growth accelerates.
Thirdly,inventory levelsThat's it. Keep an eye on whether NVIDIA can maintain a low inventory to revenue ratio.
What is the fourthprofitableThat's it. We will see if NVIDIA can continue to maintain high levels of gross margin and net profit margins.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more
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