Chapter 1: What is the main topic discussed in this episode?
Welcome back to The Rundown for another weekend deep dive. Today, we are talking about the most important stock in the world right now, NVIDIA. NVIDIA just dropped their latest earnings report this week, and once again, the numbers blew expectations out of the water, yet the stock still dropped.
So in today's deep dive, we'll take a closer look at Nvidia's earnings and why some are concerned about the company moving forward. We'll also take a look at the bull case and why some investors think that Nvidia is actually undervalued right now. We got a great one for you today. Let's dive in. All right, let's take a closer look at Nvidia's earnings because honestly, the numbers are absurd.
For the fourth quarter, Nvidia reported $68.1 billion in revenue. That's up 73% from the same quarter last year.
Chapter 2: What were Nvidia's earnings results and why did the stock drop?
Net income came in at $43 billion, which is a 94% jump year over year. The majority of the growth is coming from the data center business, which includes their AI chips. Data center revenue was $62.3 billion, growing 75% year over year, and now accounts for over 91% of the company's total revenue.
You know, it wasn't that long ago that Nvidia was a gaming company, but their gaming division only brought in $3.7 billion in Q4. These days, Nvidia is a full-on AI chips company. You know, I was listening to the earnings call and on that call, Nvidia said that their data center business has increased by 13 times since the launch of ChatGPT. I mean, that was like three and a half years ago.
So the growth in Nvidia's business has been absolutely crazy in a very short amount of time. Now digging a little deeper, gross margins held strong at 75%, which was right in line with expectations. Now there's been concerns that Nvidia's margins might start to slip, but that's not the case so far.
Honestly, I find it very impressive that Nvidia is selling hardware and able to generate software like margins. And one number that really jumped out to me was their networking revenue. Nvidia made nearly $11 billion in networking sales, which was up 263% year over year. Now this networking business includes their NVLink technology and their Spectrum X ethernet switches.
This is the stuff that connects the hundreds of Nvidia GPUs together in data centers to create these massive GPU clusters. So this shows that Nvidia's customers aren't just buying their chips, but they're also buying entire AI systems. And speaking of Nvidia's customers, from this earnings report, we learned that the hyperscalers accounted for over 50% of Nvidia's data center revenue.
The hyperscalers include Microsoft, Meta, Amazon, and Google. So Nvidia is making half the revenue from just four companies. We're gonna talk more about that in a bit. Overall though, if you zoom out, Nvidia ended their fiscal year with over $215 billion in revenue and $96.7 billion in free cashflow, which is just nuts.
I mean, across the board, this was a dominant quarter, and management doesn't expect things to slow down anytime soon. The company expects Q1 revenues to come in at $78 billion, which is higher than the $73 billion that analysts were expecting. Now, Nvidia's stock did initially pop around 2% to 3% after their earnings came out on Wednesday afternoon.
But then by Thursday, the stock had dropped more than 5%. And then on Friday, the stock dropped another 4%. So despite beating on every metric across the board, Nvidia stock is down almost 10% following their earnings report. So let's get into the bear case and why investors are suddenly so nervous about Nvidia going forward.
All right, so if Nvidia is printing money and crushing expectations, why did the stock lose nearly 10% of its value in two days? Well, the thing is the market is forward-looking and right now investors are getting seriously spooked by a few looming risks when it comes to AI. I think the market is kind of going through an identity crisis.
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