• Nvidia Corporation is the largest chipmaker in the United States. It is often referred to as semiconductor builder. Semiconductors are an intermediary between an electrical conductor and an insulator which basically helps control the flow of electricity. These chips are used in a wide variety of applications – from computers which mine cryptocurrencies (like Bitcoin) or run Artificial Intelligence or video games, to mobile phones and even modern motor vehicles.

  • Nvidia reported first-quarter results for its fiscal 2022, with sales growing 84% to $5.66 bn compared with last year. The company enjoyed tailwainds provided by a global semiconductor shortage which helped it surpass both sales and earnings forecasts. Revenue was up 13% across all the major platforms from last quarter, with Gaming, Data Center, and Professional Visualization achieving quarterly records.

  • Automotive was down 1% from a year earlier and original equipment manufacturer (OEM) and other revenue jumped 137%, reflecting the addition of specialized Cryptocurrency Mining Processors (CMPs). The company has gone so far as to add new software to make its other consumer graphics cards less attractive to cryptocurrency miners in an attempt to reserve supply of those for other chip buyers. CMP’s generated $155 million in sales and they expect this to reach $400 million in the current quarter.

  • Non-GAAP gross margins improved to an impressive 66.2% from 65.5% in the previous quarter. 

  • Gaming revenue was up 106% from a year ago and up 11% q-o-q thanks to higher sales in GeForce GPUs, with both desktop and laptop setting records, as well as game-console system on a chip (SOC). Gaming also benefited from cryptocurrency mining demand, but they are not sure to what extent.

  • Data Center revenue was up 79% from a year ago and up 8% q-o-q. This was primarily driven by the Mellanox acquisition and the ramp of NVIDIA Ampere GPU architecture products into vertical industries and hyperscale customers. Hyperscale customers include the likes of Amazon, Google, Microsoft and other cloud service providers.

  • Expenses were flat q-o-q but up 45% y-o-y due to the addition of Mellanox and compensation-related costs including employee growth and infrastructure costs. Non-GAAP operating income was up 112% y-o-y and 22% q-o-q to $2.56 bn. Net income soared 107% from the year-ago period to $2.3 bn, or Diluted EPS of $3.66. 

  • Nvidia ended the period with cash and cash equivalents of $12.67 bn, which is up from last quarter thanks to growth in operating income. Free cash flow was $1.56 billion, up from $754 million a year earlier and down from $1.77 billion in the previous quarter. The company also announced a four-for-one stock split to make the shares more affordable to smaller investors.

  • Fiscal second quarter revenue is expected to be $6.3 bn and gross margins are anticipated to expand by 30 basis points from the current period. Nvidia says gamers and students are behind the increased demand for GPUs and it expects the current upgrade cycle to be strong through the rest of the year.

  • Nvidia had announced last year that it planned to buy British chip-designer ARM, a core processor technology company, from Softbank for $40 billion. The transaction is on track to close in 2022. Nvidia is a near-monopoly business with a large moat that will likely be widened if the ARM deals goes through. This is because the US could then limit China’s access to chip technology. ARM licenses chip designs to technology companies around the world and is crucial for smartphones.

  • Nvidia is a high quality business and very profitable with return on equity (ROE) and return on assets (ROA) metrics of 34% and 20% respectively. It also has impressive margins, with operating and net margins in the high 20% range and gross margins over 66%. Management have created tremendous value for shareholders with return on invested capital (ROIC) of 43%. The company has benefitted from a favourable environment, with a semiconductor supply crunch driven by lockdown demand, a now from reopening economies. Nvidia is currently, in our opinion, expensively priced on earnings multiple on nearly 90x and a cash flow yield of 0.40%.