Just Broken: An hour ago Nvidia smashed Wall St's imagination about money and semiconducting

Record revenue of US$13.51 billion, up 88% from Q1, up 101% from year ago
Analyst forecasts destroyed
Record Data Centre revenue of US$10.32 billion, up 141% from Q1, and 171% from year ago

While fools like us slept off Wednesday, the shiny new 1 trillion US dollar AI pin-up Nvidia (NVDA) re-wrote the script on making money in 2023.

Nvidia remade the market in its shape back in May with a stupendous revenue drop and some outrageous Q2 guidance, adding a heap of fuel to its own rally and more kindling to other Mega Tech stocks on the artificial intelligence euphoria.

Investors did expect the semiconductor giant to report another round of stellar results… but with the AI hype and Nvidia dreams rising exponentially, the risks surrounding the result were damn asymmetrical.

Any metric missing analyst forecasts could easily lead to Wall Street disappointment and a likely collapse in stock, index and confidence.

And yet, almost casually, NVDA reported revenue for the second quarter ended July 30, 2023, of US$13.51 billion, up 101% from a year ago and up 88% from the previous quarter.

The Artificial Intelligence engine-maker and computer goddess of the moment danced past Wall Street analyst consensus by a margin so wide you could drive a semi through it.

GAAP earnings per diluted share for the quarter were $2.48, up (checks notes, lights cigarette, finds wife’s jewellery box, calls broker) 854% from a year ago AND up 202% from the previous quarter. That previous quarter, BTW, was thought to be unimpeachable in its new benchmark status.

Non-GAAP earnings per diluted share (or adjusted earnings) were US$2.70, up (frantically searches undies drawer for emergency bottle of Stolichnya) 429% from a year ago and up 148% from the previous quarter.

The stock popped nearly 10% early our time while analysts popped champagne and baggies, as the reality dawned on them that their united imagination around NVDA’s Q2 was simply insufficient.

The Street’s consensus on Nvidia’s EPS was about 30% beneath what the bright light in US semiconductor design delivered. Likewise, that revenue of $13.51 billion – it was 22% ahead of consensus.

“A new computing era has begun,” declared founder and CEO Jensen Huang, sounding a little mega-maniacal. “NVIDIA Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI.”

To ice the point, Huang is offering forward guidance for Q3 at a staggeringly ballsy US$16bn.

Here’s the Q2 dirt quickly:

Nvidia drops Q2 EPS (adjusted) of US$2.70, 29% above analyst expectations
Revenue up 88% from the first quarter and 101% from a year ago
Revenue for Q3 is guided for US$16 billion.
Data centre revenue popped 171% YoY to US$10.32 billion
(Last I checked) NVDA stock was ahead double-digits from $471.15 to $517 in after market trade

For the third-quarter outlook, management is expecting $16 billion in sales. This is a quiet mockery of what the experts have been predicting.

A US$16bn of sales revenue is almost 30% above the analyst consensus of US$12.4 billion.

GAAP and non-GAAP gross margins are expected to be 71.5% and 72.5%.

Data centre revenue added 171% on last year’s Q2 to US$10.32 billion. Gaming revenue was up 22%, to US$2.49 billion.

The stock is popcorning as I write and drink and smoke. It’s fun to watch.

Even the stock of various US chip stocks are gaining in aftermarket action on the back of Nvidia Corp.

Advanced Micro Devices Inc. (AMD) shares were up more than 4% and Super Micro Computer (SMC) was up more than 6% in Wednesday’s extended session.

The suddenly Old Hat-looking, Intel Corp and Qualcomm Inc were both not invited, it seems. Lower after close.

NVDA: The good Darth Vader today

No-one picked what kind of momentum NVDA was creating, as demand for Nvidia’s H100 and A100 chips (used in artificial intelligence technologies and most importantly generative AI), marched beyond fears and then hopes. And then the most bullish of hopes. Even now it seems like some Jedi mind trick.

Because there was fear. Oh yes. A lot of fear.

A poor read from NVDA, the AI crown jewel of the USA, along with bad form out of China and any nonsense from Jackson Hole, likely would’ve torn its own hole through trader confidence.

If they were wrong about NVDA, then they could be wrong about everything AI. And AI has been the White Michael Knight driving these so strange 2023 gains.

But those fears look misplaced right now as the stock climbs. It popped nearly 10% late Wednesday after the hit on consensus took a second to sink in.

During the session, traders ummed and ahhed in painful fashion, until later in the day when Nvidia stock climbed (it closed up 3.2%) as the bolder punters added to their stakes in regular market hours.

Then NVDA closed at $471.15. (And BTFW – based on that closing price, the stock is up 230% YTD, anyhoo). Then there was time for a last snort and an egg sandwich. And then the fun began.

What to do with the cash?

So to make sweet with investors, during the second quarter of fiscal 2024, NVDA returned some US$3.38 billion to its shareholders, but in the form of a 7.5 million share buyback – repurchased for $3.28 billion.

Then there were some cash dividends, but not biggies:

“As of the end of the second quarter, the company had $3.95 billion remaining under its share repurchase authorization.

“On August 21, 2023, the Board of Directors approved an additional $25.00 billion in share repurchases, without expiration. NVIDIA plans to continue share repurchases this fiscal year.

“NVIDIA will pay its next quarterly cash dividend of $0.04 per share on September 28, 2023, to all shareholders of record on September 7, 2023,” the company said in its Q2 release.

I’d end it there, but here’s what else Jensen said:

“NVIDIA GPUs connected by our Mellanox networking and switch technologies and running our CUDA AI software stack make up the computing infrastructure of generative AI.

“During the quarter, major cloud service providers announced massive NVIDIA H100 AI infrastructures. Leading enterprise IT system and software providers announced partnerships to bring NVIDIA AI to every industry. The race is on to adopt generative AI.”