In the second part of our inaugural report on Nvidia, hailed by some as the first “AI superpower,” we analyze its financials and provide our verdict on the company's key headwinds and tailwinds.
In part one, we assessed Nvidia’s growing dominance in the Semiconductor market.
If you missed part one, read it here.
5. Nvidia’s Fundamentals
Unsurprisingly, given its recent price surges, Nvidia stock is not cheap. It has a trailing 12-month P/E ratio of 75.79 as of May 9 — more than three times the average for the S&P 500 (22.62) and more than double that of the NASDAQ 100 (29.45) — meaning investors currently pay over $75 for every dollar of earnings that Nvidia has generated over the past year.
In order to understand why the market prices Nvidia’s shares so highly, it is important to examine the dynamics that are currently playing out in its revenue and earnings.
Revenue Growth
It might seem reasonable, given that Nvidia is one of the most valuable companies in the world, to assume that it’s the largest seller of semiconductors.
The reality here is less clear, however. According to Gartner, Nvidia was the fifth-largest semiconductor vendor by revenue in 2023, with 4.7% of the market.12 Ahead of it were Intel [INTC], Samsung [005930:KS], Qualcomm [QCOM] and Broadcom [AVGO].
However, Nvidia was 12th on Gartner’s list for 2022. As Gartner puts it:
“NVIDIA’s semiconductor-related revenue grew by 63.4% in 2023. This growth was driven by the demand for clusters of high-performance GPU-based computing systems for the development of large language models, such as GPT, used in generative AI.”
The top three semiconductor companies — Intel, Samsung and Qualcomm — all reported that their semiconductor revenue fell in 2023. Samsung’s declined by 35.9%, while Intel’s and Qualcomm’s fell by 15.9% and 16.1%, respectively.
Nvidia hoovered up this market share. Only three other companies in Gartner’s top ten — Broadcom, STMicroelectronics [STM] and Infineon Technologies [IFX:DE] — grew their semiconductor revenue during 2023, and Infineon, at 14.7%, was the only one to achieve double-digit growth.
While Nvidia is number five, it is growing faster than any of its competitors. Gartner attributes this growth to Nvidia’s leading position3 within the AI silicon market.
Let’s take a closer look at Nvidia’s revenue growth.
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