Nvidia just proved why it could be a big winner in 2022 and beyond
Beyond the massive sale of technologies, investors in the computer giant Nvidia (NVDA 1.72% ) had mixed feelings in February. An $80 billion bid to acquire a chipmaker called Arm Semiconductor from SoftBank has been dropped due to regulatory challenges.
But Nvidia’s fourth quarter and fiscal year 2022 results released on February 16 were impressive across the board and demonstrate that the company has a bright future even without this deal. Shareholders still have a lot to love about Nvidia and its future.
Image source: Getty Images.
The omniverse is at your fingertips
The proposed Arm deal was intended to help Nvidia move beyond its graphics processing unit (GPU) business by focusing on high-performance computing and artificial intelligence (AI). Nvidia wants to be the leader in accelerated computing, and Arm’s central thesis was to implement its three-chip strategy of graphics processing, data processing, and core processing. Accelerated computing is a term that encompasses several different workflows, including connected products, industrial automation, and robotics. Nvidia has come to define this concept as the omniverse, an interactive way of capturing spatial patterns or renderings in real time.
These capabilities would be extremely valuable to technology and industrial companies such as automakers that design factories and robotics. In the omniverse, workers can connect in a single, interactive environment to collaborate more effectively. Despite being in the early innings of the omniverse, Nvidia has integrated its applications into end markets, including architecture, manufacturing, media and entertainment, and game development. Early adopters include Cisco, disneyowned by Pixar Studios, and Adobe.
Those initial successes, along with strong financial performance, have driven Nvidia stock up more than 60% in the past 12 months. But a week before its last earnings report, shareholders learned that the company had canceled the proposed acquisition of Arm due to antitrust concerns from regulators. The stock price fell 3% but rebounded later in the day.
The game quickly becomes a great strength
Nvidia’s business is captured by two main segments: graphics and computer networking. These segments are broken down into five market platforms: gaming, data center, professional virtualization, automotive and robotics, and original equipment manufacturing.
For fiscal year 2022 which ended January 31, 2022, Nvidia generated $26.9 billion in total revenue, representing a 61% year-over-year increase. The gaming unit generated $12.5 billion in revenue, up 61% year over year, and accounted for 46% of the company’s total revenue.
Nvidia has not been immune to supply chain disruptions and seen declining inventory levels, ending fiscal 2022 with $2.6 billion in inventory, down from $1.8 billion. dollars the previous year. Colette Kress, Nvidia’s Chief Financial Officer, said: “Outstanding inventory purchases and long-term supply obligations were $9.0 billion, compared to $2.5 billion a year ago. year and compared to $6.90 billion a quarter ago, due to longer delays throughout the supply chain.”
Either way, the gaming unit’s impressive growth was driven by strong consumer demand for its architecture products and GPUs. Although supply chain disruptions may cause short-term turbulence, demand for Nvidia products remains strong.
Don’t Underestimate Big Data’s Tailwinds
Another exciting area of growth for Nvidia is hyperscale data centers, which are much larger than traditional data centers and tend to outperform them given the amount of data and storage services they can handle. .
Companies like Amazon, google, Microsoft, Snowflakeand Palantize all contribute to the growing business demand for hosting data in the cloud and synthesizing data to drive business results. When it comes to cloud computing, Nvidia is an integral part behind the scenes. The company’s GPUs help power complex systems like the conversational AI used by Siri on iPhone and smart devices like Alexa.
Nvidia will benefit from the data bonanza as it will become a central pillar for businesses of all sizes. For fiscal 2022, Nvidia generated $10.6 billion in data center revenue, up 58% year-over-year. Nvidia CEO Jensen Huang said, “Applications for AI are unquestionably and rapidly growing.” Hyperscale data centers are an important end market for Nvidia as the Internet of Things (IoT) contributes to increased data requirements.
A bright road ahead
In the fiscal year that ended in January, the company increased revenue in all five reported segments. and increased its gross margins from 62.3% in FY21 to 64.9% in FY22. Nvidia’s revenue growth and margin expansion plummeted to its bottom line. The company’s net income for FY22 more than doubled from $4.3 billion in FY21 to $9.8 billion. Despite the supply chain disruptions, Nvidia has done a good job of deploying its capital efficiently and using its operating leverage. The improved profitability profile helped the company strengthen its cash balance, which stood at $21.2 billion from $11.7 billion a year earlier.
As supply chain issues persist, 2022 will be an interesting year for Nvidia management. But given its capitalization and explosive growth across all reporting segments, Nvidia seems well positioned for future growth, even without Arm as part of its business.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.