NVIDIA grew fourth quarter sales by 78% to $39.3bn ahead of market forecasts of $38.0bn. Data Center sales were the primary growth driver. Sales in the much smaller automotive division more than doubled.
Operating income grew broadly in line with sales to $24.0bn.
Free cash flow was up 38% to $15.5bn despite four-fold increase in capital expenditure. NVIDIA finished the financial year with net cash of $33.2bn after lease liabilities.
Shareholder returns increased from $2.8bn to $8.1bn, mainly made up of share buybacks.
First quarter revenue is expected to be around $43.0bn, $2.0bn ahead of market forecasts. Underlying gross margin guidance is 70.6% compared to market forecasts of 71.5%.
The shares were up 3.7% before the final bell, falling back 1.5% in after-hours trading once the results were released.
Our view
NVIDIA’s fourth quarter earnings beat should go some way to fend off immediate concerns that falling investment requirements for training AI models could impact demand for the company’s chips.
As AI adoption grows, the focus is shifting from training to putting those learnings into action (inference) which could in fact be the larger opportunity. Emerging models such as DeepSeek R1 are accelerating demand for computing power, and while there are some meaningful rivals emerging in the inference space, NVIDIA offers a compelling solution to its customers.
It’s not just the chips that make NVIDIA’s product so appealing, the CUDA software platform that enables users to optimise the hardware is key. We expect that NVIDIA will continue to enjoy its dominant position over the next few years. Its technological edge affords it one of the strongest gross margins in the industry and while they can move around a little, improvements are expected later this year.
The question of return on investment is also valid. For now, NVIDIA’s biggest customers, like Meta and Microsoft, are happy to build now in anticipation of the products coming down the line. Over the next year, it’s vital that those using NVIDIA hardware to build AI products start to see the benefits.
There’s already a solid library of use cases as multiple industries change how they work. Notable examples include automated diagnostic tools, robotic customer service agents, and models to drive down organisations' carbon footprints.
An overlooked strength is how capital light NVIDIA’s business is, and when combined with strong cash flows and a healthy balance sheet, there’s plenty of scope for share buybacks and dividend payments. Though, nothing is guaranteed. The strong financial profile is partly down to its outsourced manufacturing model.
But the ability to scale is dependent on key partners. Recent production constraints look to have been addressed. There’s no guarantee the supply chain will continue to keep up with soaring demand, but the next iteration of the company’s computing architecture is expected to be less challenging to roll out.
After a prolonged and fast rise in NVIDIA’s market value, sentiment has wobbled a little this year as investors assess the fast-changing dynamics of the AI boom. For a company forecast to nearly double revenue to more than $240bn over the next two years, the valuation looks attractive. NVIDIA’s proved incredibly reliable at meeting expectations in the past. But nothing can be taken for granted, so expect some turbulence if it does drop the ball.
Environmental, social and governance (ESG) risk
The semiconductor sector is medium-risk in terms of ESG. Overall, this risk is managed adequately in Europe and North America but has considerable room for improvement in the Asia-Pacific region. Its reliance on highly-specialised workers means labour relations is one of the key risk drivers. Other risks worth monitoring include resource use, business ethics, product governance, and carbon emissions.
NVIDIA’s management of ESG risks is considered strong by Sustainalytics. As the market leader in power- hungry GPU processors it’s recognised for paying close attention to the energy efficiency of it products. Business ethics concerns are addressed by Nvidia’s compliance committee, which comprises the CFO and several other senior managers. Additionally, a third-party hotline is available for both employees and third-party stakeholders to anonymously submit ethical concerns. Its human capital initiatives are also strong, which is reassuring given the talent gap in the industry. However, diversity amongst the workforce could still be improved.
NVIDIA key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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