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    NVIDIA Corp (NVDA)

    Q4 2024 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$41.85October 26, 2023
    Final Price$61.03January 26, 2024
    Price Change$19.18
    % Change+45.83%

    What went well

    • NVIDIA's software business has reached a $1 billion annual run rate and is poised for significant growth as enterprises adopt NVIDIA AI Enterprise software for accelerated computing and AI workloads.
    • Strong demand in the Data Center business driven by industry-wide transitions to accelerated computing and generative AI, with expectations for continued growth in calendar '24, '25, and beyond, as AI supercomputers are built across industries and regions.
    • NVIDIA's accelerated and programmable platform provides long-term value for customers, enabling ongoing software improvements and support for new AI models, thus ensuring the usability of their investments over time.

    What went wrong

    • Significant decline in Data Center revenue from China due to U.S. export control regulations, with expectations that China's contribution will remain at mid-single-digit percentage, potentially limiting growth in this region.
    • Gross margins are expected to decline from current highs to the mid-70% range for the remainder of the fiscal year, as favorable component costs normalize, which could impact profitability.
    • Supply constraints for next-generation products are anticipated, with demand exceeding supply, which may limit the company's ability to meet market demand and could hinder revenue growth.

    Q&A Summary

    1. Supply Constraints of Next-Gen Products
      Q: Why will next-gen products be supply constrained?
      A: Jensen Huang explained that while overall supply is improving, new products like H200 and Spectrum-X ramp from zero and can't meet demand overnight. Despite improvements, demand will outpace supply in the short term for these new products, but overall supply is increasing nicely.

    2. Gross Margin Outlook
      Q: What's driving gross margins back to mid-70s levels?
      A: Colette Kress stated that Q4 and Q1 gross margins are unique due to favorable component costs. Looking forward, they expect gross margins to return to the mid-70s for the rest of the fiscal year, driven by product mix adjustments.

    3. China Sales Impact
      Q: How is NVIDIA addressing the China market given restrictions?
      A: Jensen Huang noted that after pausing shipments due to new U.S. restrictions, NVIDIA reconfigured products and is now sampling to Chinese customers within specified limits. They aim to compete in China while complying with regulations, expecting business to stabilize after the current quarter.

    4. Software Business Growth
      Q: Can you unpack the components of the software business?
      A: Jensen Huang highlighted that NVIDIA's software is essential for accelerated computing. They charge $4,500 per GPU per year for their AI Enterprise platform, which has reached a $1 billion run rate. They anticipate significant growth as enterprises adopt their solutions.

    5. Inference Revenue Growth
      Q: How significant is inference in your revenue?
      A: Jensen Huang indicated that inference now accounts for about 40% of Data Center revenue, a substantial increase driven by the rise of generative AI applications like ChatGPT and Midjourney, which are 100% new compared to a year ago.

    6. Product Allocation Practices
      Q: How are you allocating products amid high demand?
      A: Jensen Huang stated they allocate fairly and avoid unnecessary allocations to prevent waste. They work closely with customers, connecting partners and end users, to ensure products are provided where they're ready to be deployed, optimizing efficiency.

    7. Inventory and Backlog
      Q: How should we interpret the slight decline in inventory commitments?
      A: Colette Kress explained that inventory, purchase commitments, and prepaids have varying components and durations. The similar aggregate numbers don't indicate a decrease in supply, as they continue to increase supply and manage components with different lead times.

    8. Customers' Long-Term Investments
      Q: How do customers view the longevity of their NVIDIA investments?
      A: Jensen Huang emphasized that NVIDIA's accelerated computing is programmable, allowing new software and innovations to run on existing hardware. Customers' installed base is enriched over time, ensuring long-term usability of their investments.

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