NVIDIA Earnings Blow Everyone Away

**Tyler Crowe** (0:02)
Who, boy, did Nvidia's earnings deliver? Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by long-time Fool contributors, Matt Frankel and Jon Quast. Guys, I think this has been the thing we've all been waiting for this week. It was Nvidia's earnings report. It came out after the close yesterday. Probably the most anticipated earnings report, even more so than the hyperscalers. And I think it's fair to say that the report did not disappoint. Shares are up about 7% as we're taping this morning. Somehow, the company smashed earnings expectations and guidance expectations, which at this point, I'm starting to think like, Nvidia's arguably the most followed company on Wall Street.
If the company can blast past expectations like this, I almost start to wonder like, are Wall Street analysts not really good at their jobs, or was this just an incredible quarter here?

**Jon Quast** (1:01)
Maybe both. I'm not all Wall Street analysts, but maybe some. But yeah, this is just an incredible quarter. And I mean, it's every investor's birthday today with Nvidia. You look at the largest company in the world reporting 106% revenue growth, like at some sort of scrappy startup. It's utterly unbelievable. And then you look at the guidance for the coming year. So it's guiding for 70% revenue growth on top of what it's reporting this year.
We're talking tens of billions of dollars. And the thing with that guidance is that Wall Street was expecting good stuff. Wall Street is expecting 45% growth in the coming year. Nvidia is saying 70% growth. And the thing with that is, it's indicating that it would even be higher if it could physically make the stuff. But saying that it is supply constrained, that it's a supply constrained outlook. In other words, if we could make more, if we could have more supply, then perhaps we could deliver more revenue growth in the coming year. We can't. So we're saying around 70%.
Unbelievable. The top five hyperscalers, spending roughly 800 billion in capex this year.
And many investors believe that's been unsustainable, that pace. But Nvidia is saying they expect the hyperscalers to spend 1.3 trillion in the coming year. So 500 billion more than what they are going to spend this year. So there's your headline numbers.

**Matt Frankel** (2:35)
Yeah. So companies that grow revenue at 106% year over year, generally don't trade for 25 times forward earnings like Nvidia does. It's fair to say that the stock is pricing in eventual deceleration. You mentioned the original estimate was for 45% revenue growth last year, which is a pretty big deceleration from 106%.
So now that we're getting 70% or they're saying 70%, which they have a good history of lowballing their estimates, that's the real reason the stock is rising. The company said itself that it can only satisfy about 70% of the demand it's seeing for its products. So it's not the earnings themselves. Everyone expects Nvidia's earnings to be slightly better than the guidance and analyst expectations every quarter. In fact, Nvidia initially fell when the report came out before all those forward guidance numbers were revealed. So I mean, there are margin compression concerns due to memory costs, but right now you're essentially trading about 300 basis points or 3 percentage points of your 75% gross margin in exchange for roughly doubling your revenue growth expectations going forward. But so the margins will be worth watching.
Nvidia's margins have been expanding pretty much without fail for quarter after quarter after quarter, and that's no longer the case, but not much not to like about this report.

**Tyler Crowe** (3:56)
It's kind of strange. I'm a little bit at a loss for words for this, which makes for arguably the worst podcast media ever. But this guidance revision, this large is obviously going to have a profound impact on the entire AI infrastructure ecosystem, not just Nvidia. I mean, we're seeing shares rise today, and this idea that we're actually supply constrained versus, I don't know, maybe some of these new entrants like Google's kind of these custom-built chips that all the heavy scale is building themselves. There was this concern that maybe demand might be there, but it is there. So, with that in mind, all of this supply coming to the market from Nvidia, from these other companies, and we're still supply constrained.
We've covered the picks and shovels of the AI infrastructure buildout a couple of times here, but I want to challenge you guys a bit because this is the biggest story over the next couple of years. It's hard to avoid. What are some of the companies in this picks and shovels part of the industry that this revision kind of signals to that are going to be like the winners and losers? And maybe let's focus on some of the ones that are a little lesser known here and really lean into our hidden gems kind of theme here.