The world of Tech company evaluations is one that is a rocky landscape. While only time will tell whether or not Nvidia’s current high valuation is justified, one thing is certain: Its market capitalization of roughly $3 trillion is based on expectations for future growth more than it is on current results.
The historical landscape of tech start-up companies is littered with the debris of failed enterprises. Examples such as WeWork, Bird, were once valued at billions of dollars and more recently, they collapsed. In an African context companies such as Dash ($86 Million in funding) and 54 Gene ($45 Million in funding) also failed and closed doors in 2023. WeWork filed for bankruptcy and Bird was delisted from the New York Stock Exchange.
While Nvidia saw its revenue and profit grow at an extraordinary pace over the past year, it is still way-off the heights of competitor brands, that while well established, have evaluations in the trillions of dollars. Apple and Microsoft have been consistently reporting numbers of $3 Trillion plus in the last few years.
The chart below from Satista, indicates that Nvidia revenue for the past four completed fiscal quarters totals $96.3 billion. That’s equivalent to a quarter of Apple’s revenue for the comparable time frame and around 40% of Microsoft’s.
In profit terms however, Nvidia is closing the gap on its fellow market cap heavyweights, with $53 billion in net income in the preceding twelve months, equivalent to 52% of Apple’s profit and 60% percent of Microsoft’s EBITHA.
Nvidia sets itself apart in it’s remarkable gross margin of 75% in the most recent quarter, compared to 46% for Apple and 70% for Microsoft, and, most importantly, in its current growth. Nvidia’s revenue grew 195% year-on-year for the same preceding 12-month period, compared to 0.4% growth for Apple and Microsoft’s 16% growth.
In its current quarter, Nvidia says it is expecting another 80 percent jump in revenue, but the big question being asked by the investor market, is how long the company will be able to sustain this pace of growth or the extraordinary demand for its chips that power the transition to an AI-based future of computing?
In what was however a surprise reaction Nvidia’s stock price fell over 7% after their last earning numbers were released, leaving Chief Executive Officer Jensen Huang rather exasperated. It is difficult to understand the position some analysts took given the strength of the results. In an interview with Bloomberg Television, Huang said “The fact I was so clear and it wasn’t clear enough kinda tripped me up”. He went on to argue that what’s to come is good enough for him and, therefore, should be good enough for global Wall Street.
There is always the possibility that other competitor chip makers will create a winner that would out-strip NVidia’s current chip advantages and create a more competitive market place. And It is unlikely that out of all the challenger brands there will not be a number 2 brand chasing its heels soon.
However, for now they are the clear market leader with a massive cash pile and brand position to trade on and they keep producing the goods.
