Nvidia is delivering unprecedented performance for a hardware company. Can the AI leader keep it up?
Nvidia (NVDA 4.55%) stock has been crushing the market and serving up huge wins for investors in 2024. As of this writing, the technology giant’s share price has skyrocketed 161% year to date.
Surging demand for graphics processing units (GPUs) capable of running advanced artificial intelligence (AI) applications has helped power incredible sales growth for the business. For example, revenue surged 262% year over year to hit $26 billion in the first quarter of the company’s current fiscal year.
But other trends have also played a huge role in Nvidia’s market-crushing performance — and they could help determine what comes next for the red-hot stock.
Nvidia is posting industry-defying margins
This infographic breaks down Nvidia’s business performance in the first quarter of its current fiscal year.
Data source: The Motley Fool.
With a gross profit of $20.4 billion last quarter, Nvidia recorded a gross margin of roughly 78.5% in the first quarter of its current fiscal year. That level of performance would be impressive for an asset-light software business — and it’s absolutely astounding for a bleeding-edge hardware business with substantial manufacturing costs.
Thanks to its stellar gross profits and moderate operating expenses, Nvidia was able to post $14.9 billion in net income in Q1 — good for an incredible 57.3% net-income margin. For comparison, the business posted a net-income margin of 28.4% in the prior-year quarter.
AI-related demand has been helping the company command top dollar for its most advanced processors. So what comes next for Nvidia on the margins front?
With its last update, the company guided for a non-GAAP (generally accepted accounting principles) adjusted gross margin of roughly 75.5% in fiscal Q2. That suggests a small step down from the margin it posted in this year’s first quarter, and it’s reasonable to expect that profit margins on hardware sales will eventually moderate. On the other hand, Nvidia’s next-generation processors and push into offering AI computing and software-as-a-service (SaaS) could help margins stay elevated for longer than many investors expect.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.