VALUATION HIGHLIGHTS

1. Compute & Networking constitutes 93% of the Trefis price estimate for nVIDIA's stock.

WHAT HAS CHANGED?

Q3 FY'25 Earnings

Nvidia posted a better-than-expected set of Q3 FY'25 results amid strong demand for its graphics processing units used in artificial intelligence applications. While revenue for the quarter rose 94% year-over-year to $35 billion, net income stood at $19.3 billion, up 109% compared to last year.

Nvidia's 10-for-1 stock split

Nvidia split its stock 10-for-1 after the market closed on June 7. The move comes after the stock has gained over 3x over the past year, trading at well over $1,000 per share. The split announcement also resulted in a rally for Nvidia stock, since it would make it more accessible to smaller investors, driving up demand for the shares. Secondly, the split also indicates that management is confident about the company’s prospects and that growth could remain strong

Note: Nvidia's FY'24 ended on January 28, 2024. Q1 FY'25 ended on April 28.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Nvidia's value that present opportunities for upside or downside to the current Trefis price estimate for Nvidia:

Compute & Networking

• We currently forecast Nvidia's Compute & Networking to increase from $47 billion in FY 2024 to $320 billion by the end of the Trefis forecast period. However, if sales grow to over $400 billion by the end of our review period, driven by stronger demand from datacenter, automotive, and embedded customers, we could see a 15% upside to our price estimate.

For additional details, select a driver above or select a division from the interactive Trefis split for Nvidia at the top of the page.

BUSINESS SUMMARY

While Nvidia is best known for its graphics processing units, which are essentially high-performance processor that generates realistic graphics for gaming on computers, the company expanded to several other large and important computationally intensive areas. Nvidia's GPUs are now much sought after for workloads including artificial intelligence, autonomous driving, as well as cryptocurrency mining. The company is a fabless semiconductor vendor, as it outsources its fabrication to specialized foundries. The company's products are now used in gaming, professional visualization, data center, and automotive markets.

SOURCES OF VALUE

We believe that the Compute & Networking segment is the biggest driver of Nvidia's value. The division grew by about 215% in FY'24, emerging Nvidia's biggest business segment with over $47 billion in revenue. Moreover, we believe the segment has stronger long-term growth potential as well, given that demand is driven by important trends in the computing industry - including the deployment of artificial intelligence capabilities by cloud vendors, the development of autonomous driving technology, and cryptocurrency mining.

KEY TRENDS

Surging Demand For Generative AI applications

Generative artificial intelligence (AI) has captured the imagination of the world following the launch of the viral ChatGPT chatbot. Technology companies and developers have been scrambling to deploy generative AI into their applications and investors are counting on this to drive a windfall of sorts for Nvidia, whose server chips remain the go-to products for AI workloads. Artificial intelligence workloads require a considerable amount of computing capacity, shifting the power balance away from central processing units made by the likes of Intel to Graphics processors, a market in which Nvidia dominates.

Increasing Adoption of Deep Learning Across Multiple Industries to Drive Nvidia's Data Center Growth

GPU-accelerated data centers are expanding in both High-Performance Computing (HPC) and the cloud, driven by the growth of deep learning and Big Data. GPUs have become the accelerator of choice for hyper-scale data centers due to their superior programmability, competitive performance, and power efficiency. The launch of VR can lead to potential growth in the enterprise segment across multiple industries. Nvidia powers IBM's lesson and Facebook's big source server from Artificial Intelligence (AI). It is present in AI platforms at hyper-scale giants such as Microsoft, Amazon, Alibaba, and Baidu for training as well as real-time influence. Nvidia is engaged with nearly 3,500 companies and organizations in developing deep learning technology.

Expansion in Gaming

Growth in gaming is expected to be fueled by the continued anticipation of new blockbuster games, the rise of eSports, the emergence of new technologies like virtual reality (VR) and Direct X, and the expansion in developing countries. Nvidia's gaming platform has grown at a >30% rate for the last four years. Since Nvidia has still not fully penetrated the market, it believes there is ample scope for growth.

Expansion of Advanced Driver Assistance Systems (ADAS) & Self-Driving Car Technologies To Drive Growth in the Automotive Segment

The automotive segment is one of the fastest-growing sub-segments of Nvidia's Compute & Networking business and offers higher gross margins. The company has been working on building its automotive computing platform for over a decade and is in a strong position to leverage this growth. Over FY'23 Automotive and Embedded revenues rose by about 60% to a record $903 million.