NVDA Q12018
5/9/2017
Thanks to Seeking Alpha for the use of their transcripts.
I am going to show some numbers first that some people know better than
I but hopefully it will create a nice discussion on NVDA. Some of these numbers
I have shown previously but this post is on Q12018 and where I think NVDA is headed.
Hopefully some people will disagree so that I can get a better picture of this company.
I could be late, but I think I am still early.
**Revenue Growth:**
Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118
1.15B 1.15B 1.30B 1.40B 1.30B 1.43B 2.00B 2.17B 1.94B
5% 5% 8% 12% 13% 24% 54% 55% 49%
**Earnings (EPS) Growth (QoQ)**
Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118
$.33 $.34 $.46 $.52 $.46 $.53 $.94 $1.13 $.85
13% 18% 21% 39% 56% 104% 117% 85%
**Earning (EPS) Growth (YOY)**
Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118
$.33 $.34 $.46 $.52 $.46 $.53 $.94 $1.13 $.85
$1.45 $1.49 $1.56 $1.65 $1.78 $1.97 $2.45 $3.06 $3.45
17% 22.8% 32.2% 57.1% 85.5% 93.8%
**Margins**
```
**Gross Margins (growth from year to year)**
FY2013 FY2014 FY2015 FY2016 LTM
52.3% 55.1% 55.8% 56.8% 58.4%
```
**Operating Margins**
```
FY2013 FY2014 FY2015 FY2016 LTM
19.6% 16.1% 20.4% 22.5% 28.8%
```
```
All of those numbers we have seen in a previous post. I want to keep track of
them though Quarter to Quarter. But now I would like to show their four business’s and
how they are doing.
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```
**Revenue per business segment.**
Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118
Gaming 587 661 761 809 687 781 1244 1348 1030
Prof. Vis. 181 187 190 192 189 214 207 225 205
DataCent. 88 62 82 105 143 151 240 296 409
Auto 77 71 79 93 113 119 127 128 140
OEM&IP 218 170 193 202 173 163 186 176 224
```
```
So as we can see the Gaming revenue gave a real shot to this company in Q2-Q3.
I think this is what people are worried about. They expect the company’s Revenue to
keep going down. Q1 is always their weakest quarter and Q4 is always their strongest.
This is because of Christmas when the video market is the strongest. But I think with
the DataCenter and Automotive sectors they will be able to keep growing in the future.
If you look at the Datacenter it is growing sequentially since Q216. At the last
conference, NVDA, launched a new GPU, Volta, which is 5 times faster. They claimed
this cost them 3 billion in research. They also launched a platform giving developers
access to the latest deep learning algorithms and frameworks. This is part of their
AI initiative and also their growth in the Datacenters. They also formed a partnership
with Toyota for the next generation of autonomous vehicles. They expect to have level 4
driving available in 2018. I think that is important especially if you look at the
numbers in the Automotive segment. They too have been growing sequentially. That is
what I am most excited about this company, is their Datacenter and Automotive
segments. Although the Gaming segment is strong and will always be a growing and
stable base with strong growth as new products come out, it is the Datacenter and
Automotive that is going to grow them to new heights. (I am trying to keep strong
adjectives from pushing this post into Fanboy territory).]
The Gaming industry is strong and with the advent of eSports, a statistic that
surprised me, more U.S millennials watch gaming than they do HBO, NETFLIX, ESPN,
and HULU combined. This is a nice wave for NVDA to be riding. Also with their new
GPU which incorporated the TPU in its card, they have kept their lead in the
DataCenters. I believe they are setting themselves up as the Chipset to have
for AI and deep learning. This is new and growing field which they announced
plans to train 100,000 people this year with the NVIDIA DEEP LEARNING INSTITUTE.
(In the Transcript they stated 100 but I believe they meant 100,000). The HPC
business, which is part of the Datacenter business doubled YoY. The Grid business
more than Tripled, YoY, driven by growth in Business Service, education, and
automotive.
Finally, automotive grew 24% YoY and 9% sequentially. Primarily from infotainment
modules. Drive PX 2 AI car platform started shipping a year ago and 225 Car and
Truck makers, suppliers, research organizations, and startups have started
developing with it. They have seen that number grow by 50% in the last quarter
alone. They have introduced Tensor RT for in vehicle Inferencing. (able to work
out problems and learn on its own). They introduced two new partnerships with
Bosch, who is developing a new AI self-driving system with their Xavier platform
and PACCAR, who is developing self-driving solutions for big rigs. Here is the
big kicker from the CC and one which I want to quote directly. “We continue to
view AI as the only solution for autonomous driving. The Nearly infinite range
of road conditions, traffic patterns, and unexpected events are impossible to
anticipate with hand-coded software or computer vision alone. We expect our DRIVE
PX 2 AI platform to be capable of delivering level 3 autonomy for cars, trucks,
and shuttles by the end of the year, with Level 4 autonomy moving into production
by the end of 2018.” Level Four by the end of 2018 is pretty amazing.
```
[http://www.techrepublic.com/article/autonomous-driving-level...](http://www.techrepublic.com/article/autonomous-driving-levels-0-to-5-understanding-the-differences/)
```
I think once they have LEVEL 4 active and running on their AI system,
LEVEL 5 can’t be far away because of all the data they will be able to collect.
```
Now there are a few more Items I want to look at.
```
**Cash vs Debt(Rounded)**
Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118
Cash $4.8B $4.5B $4.7B $5.0B $4.8B $4.9B $6.7B $6.8B $6.2B
S/T debt $0 $0 $0 $1.4B $1.4B $1.4B $1.0B $796M $215M
L/T debt $1.4B $1.4B $1.4B $0 $0 $0 $2B $2B $2B
```
**Change of debt in Q416 from long term to short term.**
```
On December 2, 2013, we issued 1.00% Convertible Senior Notes due 2018 in the
aggregate principal amount of $1.50 billion. As of January 31, 2016, the Notes
became convertible at the holders’ option beginning February 1, 2016 and ending May 1,
2016. As such, $1.41 billion of the carrying value of the Notes was reclassified
from long-term debt to short-term debt and $87 million was reclassified from
shareholders’ equity to convertible debt conversion obligation in our Consolidated
Balance Sheet as of January 31, 2016.
```
**Change of debt in Q317**
```
On September 16, 2016, we issued $1.00 billion of 2.20% notes due September
16, 2021 and $1.00 billion of 3.20% notes due September 16, 2026 (collectively,
the Notes). Interest on the Notes is payable on March 16 and September 16 of
each year, beginning on March 16, 2017. Upon 30 days' notice to holders of the
Notes, we may redeem the Notes for cash prior to maturity, at redemption prices
that include accrued and unpaid interest, if any, and a make-whole premium.
However, no make-whole premium will be paid for redemptions of the 2.20% Notes
Due 2021 on or after August 16, 2021, or for redemptions of the 3.20% Notes
Due 2026 on or after June 16, 2026.
I apologize, but I am not very good with all the debt structure of a company.
(Frankly I find it boring and out of my wheelhouse) Anyone who wants to dig
deeper it is all in the 10q’s and 10k’s. They do give out a lot of convertible
debt but even if we have a down turn they have more than enough cash to cover.
```
```
**Free Cash Flow**
Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118
FCF 216M 139M 239M 495M 254M 151M 394M 669M 229M
```
```
They have returned 85% of their free cash flow to shareholders since 2013. This
is $4.10 Billion in dividends and share buy backs. That is amazing, while still
growing their business. This is a very shareholder friendly business.
```
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**Inventory**
Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118
INV 438M 441M 425M 418M 394M 521M 679M 794M 821M
```
```
Now I find this very interesting. The company is ramping up Inventory. Or
if I was a bear I would say they are unable to sell their product so inventory
is climbing. So it has been climbing since Q117 and has doubled YoY. On the
conference call the CEO stated “The driving reasons for inventory growth is
new products, and that’s probably all I ought to say for now. I would come to
GTC. Come to the keynote tomorrow. I think it will be fun” And the next day the
Volta platform was launched along with DGX Workstation, Robot simulator, and the
NVIDIA GPU Cloud platform.
```
**Conclusion:**
```
I think NVIDIA has 3 stellar business segments, First is their Gaming segment,
This is a solid based company that will grow in leaps and bounds as they introduce
new video cards.The second segment is their DataCenter portion. This has so many
different parts and has almost tripled every quarter for the last 3 quarters.
They just released the new VOLTA platform which should give them a new boost of
Revenue. This is one of the segments that the analysts just can’t get their heads
around and is why Nvdia just keeps blowing it out of the water. Although I do not
like buzzwords, Nvidia certainly believe in AI and they are in the lead with no one
even close to them.
```
```
The Third segment is Automotive. This is going to be huge also and they are
stating they will be Level 4 compliant by Q42018. They appear to be in the lead
in this market also with everyone struggling to catch up. They have many impressive
wins with car makers and suppliers. This is just going to keep growing.
```
```
A fly in the ointment though is that their licensing agreement with Intel is coming
to an end. Intel will be able to use any patents that Nvidia has up to March 2017
in perpetuity but Nvidia will no longer receive any royalties. This will cost
them approximately 50 million dollars a quarter I believe.
```
```
Finally, I am pretty sure this is how the rise of the machines started.
We all should probably just invest in this company and have fun because Skynet is
just around the corner. :)?
```
Andy