Nvidia Delivered Record Earnings for Q1 Fiscal 2025
Nvidia delivered record earnings for Q1 fiscal 2025, up 18% from Q4 and up 262% from last year. At the time of writing, Nvidia's stock has surged over 9% in the past 5 days, while market indices have seen varying degrees of decline: Nasdaq composite (NASX) -0.39%, S&P 500 Index (SPX) -0.74%, NYSE Composite Index (NYA) -1.14%, and Dow Jones Industrial Average (DOWI) -1.53%. The Dow Jones Industrial Average suffered its worst day of the year, falling over 600 points.
History of Nvidia: The Ups and Downs
Nvidia was founded in 1993 by Chris Malachowsky, Curtis Priem, and CEO Jensen Huang. Prior to founding Nvidia, Jensen Huang worked at AMD and LSI Logic. Huang's connections with the latter company eventually proved to be instrumental in helping AMD secure a venture capital of $20 Million from Sequoia Capital. With an initial capital of merely $40,000, the significance of this venture capital could not be understated. However, Nvidia would soon come to face its first series of major obstacles, where the first major display adapter NV1 did not find much success, and to make things worse, the NV2 was dead in the water.
By 1997, Nvidia was already hanging on by a thread, with funds to sustain only 9 months of operations. Nvidia had to retrench their initial team of 100 to a humble roster of just about 30. It was not until then that Huang decided to commit to his last ditch effort, releasing the RIVA128 GPU, also known as the NV3. The product saw some success, attributed to its decent price-to-performance ratio, allowing Nvidia to barely tide over the looming crisis.
Handed the second chance, Huang wasted no time. He analyzed the market, formed long-term strategic collaborations with TSMC, and supported Microsoft in the release of the Direct3D API all in quick succession. This series of ingenious decisions solidified Nvidia's initial status in the early GPU market.
RIVA TNT, codenamed NV4, is the successor of the RIVA128 was a major hit and it propelled Nvidia to such heights that allowed Nvidia to be listed on NASDAQ in 1999.
With the newfound success, Nvidia released the legendary GeForce256, which further extended their lead over competitors in the GPU market. From 1999 to 2003, Nvidia saw growth like never before, nearly doubling their year-over-year revenue, with their revenue reaching nearly 2 billion dollars in 2003.
Nvidia's acquisitions, most notably of 3dfx, cemented their dominance, leaving only Nvidia and AMD as the major GPU market players by 2000.
In 2006, Huang took the leap of faith and made the decision that would have the greatest impact yet. Huang wanted his GPUs to be able to be used for accelerated general purpose computing, which was at that time, not only unheard of, but was also a seemingly irrational decision considering the projected ROI.
By 2007, Nvidia released CUDA, the parallel proprietary computing platform that allowed his GPUs to perform accelerated general purpose computing. However, CUDA was too ahead of its time, it felt like it had all the cons with no pros to back it up, Nvidia had to devote large sums into the R&D of CUDA, incorporating CUDA into the chipsets also meant greater surface areas needed, resulting in heating problems, leading to performance issues. All these issues paved way for an eventual incident where companies like Apple and Dell which used the G84 and G86 chips from Nvidia in the making of their laptops faced problems such as graphical distortion, graphical malfunction under high heat. All these problems culminated in the operating income of Nvidia's 2009 and 2010 reports to go in the reds. The brutality did not stop there as Wall Street valued CUDA at "zero dollars" in Nvidia's market cap.
For Nvidia, it certainly pours when it rains. By 2012, the smartphone market had just begun to take the consumer market by storm, and major players all wanted in. Among these are names like Intel, AMD, Qualcomm, Samsung, and MediaTek. Nvidia, of course, did not want to miss out and fired their shot with the Tegra chips. However, by Q3 of 2014, it was apparent that the Tegra chips were not well-received at all, and Nvidia held a market share of barely 1%, forcing them to eventually exit the market.
If you thought this was the end of Nvidia's misfortune, you'd be wrong. Nvidia being the resilient company it has been, then decided it was time for them to devote their resources into a different domain, and this time round, they chose the autonomous vehicles. In fact, it was in 2012 that Tesla announced that they would use Nvidia's Tegra 3 chips in the making of their Model S autonomous vehicles. In 2016, Tesla and Nvidia simultaneously announced the Model 3 vehicle and the Drive PX 2 that was based on 2 Tegra processors, signaling their collaboration in the realm of autonomous vehicles in the coming years. This collaboration was short-lived as by March 2019, Elon Musk announced the new chip FSD on Tesla's autonomy day. This announcement caused Nvidia's stocks to plummet.
After an extended period of alternating between mediocrity and gloomy days, Nvidia finally saw a breakthrough when the cryptocurrency bull market showed up in 2019, where Nvidia reaped massive profits from cryptocurrency miners who procured large amounts of their GPUs for mining purposes.
This blessing was, however, once again short-lived as a multitude of misfortunes struck Nvidia. First, the end of the cryptocurrency bull market by 2021 meant that the GPUs miners hoarded lost their value, compounded by Ethereum's shift of mechanism from Proof of Work to Proof of Stake. Nvidia's corporate network was also struck by a ransomware attack that stole over 1TB of data. The series of misfortune resulted in a plunge of 65% in Nvidia's stocks from November 2021 to October 2022.
Fortunately for Nvidia, just one month after the stock fiasco, the OpenAI team announced ChatGPT which spearheaded the AI revolution, sparking the resurgence of Nvidia's stocks today.
Veteran Analyst Jesse Felder's take on Nvidia
While most of the analysts and investors are busy celebrating Nvidia's success, not everyone is optimistic about Nvidia's trajectory.
Jesse Felder, the veteran analyst behind The Felder Report, is not optimistic about Nvidia's record-breaking revenue. Felder made his case on the latest podcast episode of "Thoughtful Money" where he asserted that Nvidia is in a tech bubble, and predicted that the microchip frenzy would fade, with stock-market returns dropping off, and urges people to prepare for slower growth, higher unemployment and sticky inflation and interest rates among other things.
Nvidia's Peak: Should you "panic", or should you "greed"?
The one question that existing and potential investors have in the back of their mind is that with Nvidia's stock peaking, should they "panic" or "greed" in Buffett's philosophy? While Nvidia's have hit an all-time high, if we take a look at their forward P/E ratios which is largely considered more relevant than the historical P/E ratios, we can see that Nvidia's 10-year average forward P/E ratio is 35.2x, and its current forward P/E ratio stands at 34.5x which implies that AI growth could possibly be already priced in. When we look at a different metric, the historical P/E ratios, it is evident that the general public has always had great confidence in Nvidia's potential, with their P/E historical high at 144.48 in 04/30/2024, and at the time of writing, at 87.01. This means that Nvidia stock, while being heavily valued by the market, is still a distance away from the historical height, where one should necessarily consider getting out while they are ahead.
Nvidia's stock has historically cycled between skyrocketing and inflecting, yet the company has always made comebacks. With Google's TPU and Intel's Falcon Shores GPU on the horizon, Nvidia's dominance in AI is uncertain. However, Nvidia's success with products like the A100, H100, and the upcoming B100 and X100 suggests continued growth is likely, though investors should remain vigilant for potential downturns.
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