NVDIA Analysis: A Financial Equity Perspective
Business Overview & Revenue Drivers
Buy recommendation: Target price: $130. 10% upside
NVIDIA Corporation (NASDAQ: NVDA) operates as one of, if not, the leaders of accelerated computing, whose expertise lies in four main market platforms: Data Center, Gaming, Professional Visualization and Automotive. Originally known for Graphics Processing Units (GPUs), NVIDIA has expanded into AI computing and cloud infrastructure, crucial to the company’s growth.
In the fiscal year of 2024, Revenue increased by 126% to $60.9 Billion with two main revenue drivers: Compute & Networking and Graphics. Revenue growth in NVIDIA was backed up by the expansion of Hopper GPUs, Infiniband and Blackwell GPU architectures for training and inference in AI LLMs and Generative AI platforms. Additional sources include Cloud Partnerships and increased demand for NVIDIA's GPU, particularly the GeForce RTX 40-Series. Key points to note include that the Data Centre has recorded the highest revenue growth rate of +217% YoY, followed by 21% for Automotive, 15% for Gaming and 1% for Professional Visualisation.
Cost Drivers
Cost of revenue
The primary components include the semiconductor cost such as wafer fabrication, assembly, testing, packaging. It includes expenses for memory and other hardware components in GPUs and AI accelerators.
Nvidia recorded $2.2 billion in provisions for inventory and excess purchase obligation. Cost of revenue also includes acquisition-related costs, development costs for license and service arrangements, IP-related costs, and stock based compensation related to personnel associated with manufacturing operations.
Operating Expenses
Research & Development (R&D): There was an increase of 18% to $8.675 billion for fiscal 2024. This shows that they were doing better than expected which were driven by employee growth, stock-based competition, higher investment in AI, software and chip development.
Sales, General & Administrative: There was an increase of 9% to $2.654 billion which was driven by higher compensation, marketing, and infrastructure cost.
Inventory and supply chain
Nvidia recorded $2.2 billion in provisions for inventory and excess inventory purchase obligations in fiscal year 2024 and 2023. There is a high demand for GPUs and AI accelerators leading to increased production. Costs related to excess inventory provisions impacted gross margins by 2.7%.
Segment specific cost driver
Significant cost of growth driven by the demand for the Nvidia Hopper GPU platform and InfiniBand networking solutions. Growth driven by higher gaming revenue and increased sales to partners
Competitive Advantage
Investment Thesis
We see Nvidia as a high conviction leader and strong earnings compounder as it has such dominance in AI chip development today, bordering on a near-monopoly, hence there is a high demand for their AI graphics processing units (GPUs) - 2024 to 2028E organic revenue / adj EPS CAGR of >15%/20%, this was driven by accelerating adoption of AI, data center GPUs, and enterprise software. The company is highly dominant on accelerated computing and deep integration into AI infrastructure positions it uniquely for sustained high-margin growth.
SIMPLYWALL.ST
Management has also guided in improving gross margins of 65%-70%, supported by premium pricing power in AI chips and expanding software-driven recurring revenue. The company’s CUDA ecosystem and AI Enterprise suite further strengthen its competitive moat, differentiating it from traditional semiconductor players.
https://simplywall.st/stocks/us/semiconductors/nasdaq-nvda/nvidia/future
Despite concerns around high valuation (trading at a premium vs historical levels), we see continued earnings momentum and strong demand from hyerscales (AWS, MSFT, GCP) supporting further upside. Additionally, NVIDIA’s balance sheet strength and cash flow generation (~$25B FCF expected in FY24) allow for aggressive share buybacks and potential dividend growth.
We estimated ND/EBITDA to remain negligible, ensuring flexibility to strategic Mergers & Acquisition (M&A) where the company had acquired 6 small companies in FY2024 and increased shareholder returns over time. Risks include U.S. - China export restrictions and intensifying AI Chip competition, but NVIDIA’s technological leadership and entrenched ecosystem mitigate long-term threats.
List of 24 Acquisitions by NVIDIA (Jan 2025) - Tracxn
We are Overweight (OW) Nvidia and view it as a top structural long in the AI-driven computing revolution.
best and differentiated product portfolios as well as favorable exposure to faster-growing end markets
Ratios
NVIDIA has a high P/E ratio, reflecting premium valuation due to strong AI growth.
Its PBV ratio is high, indicating that investors are paying a premium for its assets.
EV/EBITDA is significantly high, suggesting expensive valuation compared to Microsoft and Intel but similar to Broadcom.
Forward P/E is high, meaning the market expects strong future earnings growth.
NVIDIA’s gross margin (72%) is strong, on par with Microsoft and Broadcom.
EBITDA margin (50%) shows strong operational efficiency, better than Intel but slightly below Microsoft.
Net income margin (40%) is one of the highest, signaling strong profitability
NVIDIA’s revenue growth (126%) is unparalleled, driven by AI, GPUs, and cloud computing.
EBITDA growth (681%) is significantly higher than all competitors.
Microsoft and Broadcom show moderate growth (~10-20%), while Intel is struggling with negative growth.
Risk Factors & Considerations
NVIDIA is expensive: High valuations mean it may be overbought, and a correction is possible.
Intel is struggling: Negative growth and margins suggest it is losing competitive edge.
Microsoft is a balanced option: Strong profitability but at a more reasonable valuation.
Broadcom is also premium-priced: High valuations but lower earnings growth than NVIDIA.
Final Verdict
For Long-Term Investors: NVIDIA is a BUY due to its AI dominance, growth, and profitability.
For Value Investors: Microsoft offers a better risk-reward with strong margins and reasonable valuation.
For High-Risk Traders: NVIDIA’s momentum makes it attractive, but potential volatility is high.
For Turnaround Investors: Intel may offer an opportunity if it can recover.
Recommendation
Based on our analytics, NVIDIA is a BUY for long term growth. However, for short term stock holders, it is advised to wait.
Nvidia dominates the AI chip market with 80% market share of the AI GPU market. The market currently has strong demand for Hopper & Blackwell GPUs. As pioneers of GPUs and AI chips, Nvidia benefits from strong momentum as well as high valuations. Additionally, Nvidia is equipped with growth potential as it extends into GDX cloud enterprises for AI development and autonomous driving with Drive THOR, used in major electric car companies such as Tesla and BYD.
Nvidia has shown increasing YoY earning reports and is the leading company in AI, cloud, and autonomous tech. With this analysis, Nvidia is bound to see an uptrend in the foreseeable future under normal market conditions. Thus, we would recommend this stock to be a BUY for long-term growth investors
However, based on CURRENT market conditions, the P/E ratio states that the stock is currently overvalued, thus it is not recommended for short-term investors. With the recent sharp increase in stock price, many investors are weary of the stock being overvalued. Buying into such volatility can lead to substantial gains or losses, but we believe that the recent hypergrowth can lead to a sharp pullback. (include how this is based off the reader’s risk levels?) Waiting for a more favourable stock price such as financial reports or consolidation periods would be recommended as a better entry point. Additionally, increased competition in the AI chip race such as AMD, Meta and Microsoft or even the recent China’s DeepSeek AI models can pose as an impending threat to Nividia’s growth.
Based on our analysis, we would recommend Nvidia for long term growth investors, but would advice short term investors to hold on for better entry for the stock prices. (We can talk about based on risk levels as well, like if high risk can buy nvidia based off the stock trading volume and volatility, but low risk buyers are not advised to buy nvidia at the current moment.)
References
Company Overview. (n.d.). Nvidia. https://investor.nvidia.com/events-and-presentations/events-and-presentations/default.aspx
Kalm,V. (Feb 13, 2025). Nvidia: Business Overview. Alpha Spread. https://www.alphaspread.com/magazine/company-researches/nvidia-business-overview
Marets and Markets(n,d.). AI infrastructure market AI Infrastructure Companies - NVIDIA Corporation (US) and Advanced Micro Devices, Inc. (US) are the Key Players
https://www.marketsandmarkets.com/ResearchInsight/ai-infrastructure-market.asp?
PR Newswire. (March 19, 2024). Cisco to deliver secure AI infrastructure with NVIDIA.
Good in-depth analysis. Your Final Verdict is very thoughtful for the investors with different goals. One improvement would be when (eg at what price) to start acquiring the stock. Under your recommendation, it states that short term investor are advised to wait.
ReplyDeleteI like the coverage which includes business, financial, comparative and SWOT analysis and the recommendation. Nicely done.