Nvda Q118

NVDA Q12018
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%



**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.


**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

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.


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.


            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.




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. :)?


So Duma,
What do you think of this company and where they are headed?


Hi Andy.

The growth in inventory seems decently aligned with the growth in revenue, so I don’t find that troubling, at first glance. If inventory were growing much faster than revenues, then I’d want to understand the reasons.

What an excellent set of posts, and what a service to NVDA holders and those interested in the company.

Thanks and best wishes,
TMFDatabaseBob (long: NVDA)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth

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Thanks Bob,
That means a lot coming from someone with your prowess. I think next quarter this company is going to beat Revenue and earning by a wide margin.


One thing I forgot to add.

Management is guiding for Revenue of 1.95 Billion next quarter. I believe this is a low ball figure and has many people confused on where the company is heading. This is what I believe conservatively will happen.

Lets say that the Gaming Segment is flat at $1.03B
Lets say that Professional Visualization increases minimally to $210M
Then the Data Center segment doubles instead of Triples to $800M
The Automotive segment grows minimally to $145M
Finally the IPO segment shrinks to 170M

The reason I think this is conservative is because I am leaving gaming flat on only growing the Datacenters by double when it has been growing Triple growth, and they produced a new card for the Data centers that are 5 times faster.

So the company is projecting growth of 36% yet I think the growth will be closer to 65% but to be even more conservative I am going with 60%.

The conservative investor


Then the Data Center segment doubles instead of Triples to $800M

I think you’ve made an error here. You had data center last quarter at just over $400M but by double you would need to take Q2 2017 ($151M) as a base. You seem to be taking Q1 2018 as a base. Thus, a double would be about $300M and a triple about $450M. I think $450M may be reasonable based on your past commentary.


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I think NVDA will have a good chance of doing great vs. comparisons of last year. The difficult part will be comparisons next year. The quarters a year after having 300% growth.

This said, no doubt that machine learning is in the early stages of what will probably be a multi-year Tornado. Machine learning is like what getting on the Internet was in the 1990s for companies. Business critical, and the herd is stepping forward to figure out why they want to do so, and how to do so.

We are seeing the early stages of this, will be interesting to see how far we move up the adoption curve next year. Discussed it a lot on the NPI board. I see a true, and not just talking about it, new Gorilla, in the definitional “enabling” Gorilla that Geoffrey Moore wrote about. It is happening textbook. And the great thing is that everyone has forgotten what this is all about (and the original Gorilla Game was written based on hordes of historical data, so it was not some “magic” or marketing buzzwords). It is just that we had a lull of new technological platforms that would enable a new enabling Gorilla to be created.

Here, we have NVDA in the data center, with their CUDA software and associated platform, as the standard the industry is standardizing on.

I posted on NPI last note a link to an industry post from about a year ago, with software developers wondering why Nvidia was so dominant in machine learning. The answers they gave could have directly come out of a case study in Geoffrey Moore’s Gorilla Game.

But, could write about such things for hours. Time to move on for the night. If the product adoption plays out textbook, we need to identify if we are at or before the chasm. I would say that presently, we are either at the tail end of the chasm, or just crossed it. Meaning we are at the point where the hockey stick curve starts, and just a little bit up. Meaning far enough along to identify what is happening, and early enough to still obtain risk adjusted superior returns. You cannot identify the company prior to the Tornado, so you may miss out on some of the initial stock appreciation (as NVDA has had in spades in the last 2 years), but does not mean there will not be superior returns to come (at a reduced risk - credibly make a case that Nvidia will be worth less money 5 years from now than it is today, given that the industry is standardizing on it).

Thanks Andy.



Thanks Chris, That helps you are correct. That shoots a little hole in my prognostication.


So the low end would be 1.9 and the high end would be 2.0B and that is still without in growth in Gaming. So 33% to 40% which would be close to what management projected. I was hoping for at 50% growth so I will need at the high end to come true and growth of 150 million on the Gaming side. That seems a little steep to me but maybe possible. I feel more comfortable with 45% growth now though. Thanks for the help.



I think you are correct Tinker. I hear some people scared about a slow down in the Data Centers next quarter. This has nothing to do with that. This is about machine learning and AI. That is not going to slow down in the datacenter. IF there is a slow down in the data center it is going to hurt companies like cisco, anet, ciena, and infn. but not NVDA. Also they have the gaming as a stable base and then the Autonomous driving just starting. By 2019 when level 4 is ready we should really see that taking off. I really do not see anyone that can touch them in the AI or autonomous at this time, but who knows if someone will team up on them. I am keeping my eyes open.

Thanks Tinker


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I feel more comfortable with 45% growth now though.


They are projecting 37% YoY growth and based on this article, they commonly beat by 20% (at least the past 4-5 quarters):


So, your estimate is within the realm of possibility but keep in mind that this coming quarter is also a seasonably slow gaming time.

But if they beat by 20% again, that would take growth from 37% YoY, to 64% YoY.

But past performance is no guarantee of future performance…yada yada yada.

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Thanks Duma,
I am not very good predicting quarter to quarter but I do know a game changer when I see it. This is going to be as big if not bigger than the PC market. I can’t say if NVDA is going to win but I can say they are in a very big lead right now. That is just the AI market and when you put in the Autonomous market which they also have the lead in. This could be huge.

It would be great if they hit 65%, it would be a big boost for the stock. If you look at the last quarter when they announced they would only have 37% growth I was surprised the stock didn’t drop. But maybe the market didn’t believe it either.


I don’t know what their growth will be, and presently the big number is growth in data center that counts.

But, as no one else seems to have mentioned, NVDA is the only dedicated GPU company in the world. GPUs is all they do, and they are years ahead of those that may try to copy them. Just as Tesla is for battery cars. Both are singular and unique.

Who knew when NVDA was founded that GPUs would be so good for so many different things.


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Hi Andy, I want to thank you for a great presentation and the start of a terrifically informative thread. I was very hesitant to get involved with another chip company, having had very bad experiences with Ambarella and Skyworks, but it seems as if Nvidia is in an enviable position with a large lead on everyone else in a rapidly expanding field (Artificial Intelligence).
Thanks again,


I’ve liked NVDA for a while (have a little bit when I read years ago that people were using GPUs to mine Bitcoin). I also had terrible experiences with Radeon graphics cards compared with GeForce cards. They differ from SWKS and AMBA in that their value is not overly weighted on a single customer. SWKS I think will be OK because their customer (AAPL) is a better customer than GPRO and they are further along in diversifying.

I know Saul’s concern has been commoditization. The way I see it commoditization of your product is fine if your product is the best and demand for said commodity explodes. It worked for INTC in the 90s and I think it will work for NVDA over the next 5-10 years.


Thanks Saul, I hear you. I was burned by Amba but Skyworks came back and is now doing good. I am a little leary of the AI term because of 3D printing, (although I know you did well timing that). But they do have 3 different segments to leverage. I hope to hear more from you on your thoughts about this company though. Always like having your input especially when you disagree with me.


especially when you disagree with me

But Andy, I don’t really disagree with you. I’m just cautious. It seems to have a huge lead, from what I can gather, and approaching a monopoly in some areas. And if AI turns out to be a big deal (certainly more likely than 3D printing of little plastic things), it will do great.

But Andy, I don’t really disagree with you

No I understand that Saul, I just like it when you show all the flies in the ointment.

And if AI turns out to be a big deal (certainly more likely than 3D printing of little plastic things), it will do great.

That’s true. There deep learning is already here and if inference takes off AI will be a reality. We will see. Exciting stuff though.


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I wouldn’t equate 3D printing and AI. 3D printing is a fairly new technology, as I understand it. Businesses have had some time to figure out what to do with it, but not decades. It is possible that I’m wrong about that. If so, someone please correct me.

AI, on the other hand, has had a decades-long gestation period. I studied AI a little in college in the '70s. Working on Wall Street in the mid- to late-'80s, I looked at it again to see how it might be used in a Wall Street setting. I came away with the impression that the technology wasn’t ready. Perhaps it is no coincidence that the technology wasn’t ready because the raw computational power wasn’t there.

Technology has come a long way since the late '80s. I mean that seriously, of course, but I almost put a smiley face there because it is ridiculous how much technology has advanced since the late '80s.

People have been thinking about what AI can do for many decades. Now, we have reached a point where the technology is able to support it, and we’re seeing some interesting things. Like computers beating the top-ranked Go players. Like autonomous cars. Not everything is perfect yet, of course, but we’ll see both improvement in existing AI applications and a broadened set of AI applications, because someone, somewhere thought up an AI application years ago before the technology was ready, and now they’re training their AI to make the application real.

3D printing may eventually become much more mainstream than it is today. It is my belief that the gestation period has been too short. Thankfully, I never bought into 3D printing. But I have no qualms about investing in today’s AI leaders. I own NVDA, but also many of the software companies who use AI the most (e.g., AMZN, FB, GOOG).

Although I’m a believer in the Internet of Things, I have to admit it is more like 3D printing in its gestation period than AI. With AI, we have a “baby” that’s come to full term. The other two probably still need more womb time.

All of this is just my opinion, of course, except to the extent that AI has been an academic area of study for decades. That’s a fact.

Fool on!
Thanks and best wishes,
TMFDatabaseBob (long: AMZN, FB, GOOG, GOOGL, NVDA)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth


Thanks Bob, I never thought about technology having a gestation period, but I think that is an important way to look at it. That makes Nvidia an even better investment because of their lead in GPU’s.


I wouldn’t equate 3D printing and AI. 3D printing is a fairly new technology, as I understand it.

Hi Bob - I know it seems very futuristic and has just burst onto the business scene, but actually the tech was first invented and pioneered back in the 80s - the original SLA machines were developed by the folks at 3D Systems.



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