Traders and investors fearing an NVIDIA (NASDAQ: NVDA)-led market correction can put those fears to rest. The company’s Q4 results reveal that the AI market is still strong, stronger than expected and accelerating. The results can be described as nothing but a blowout on top of four quarters of mind-bending results and improved guidance. The takeaway is that price action surged 15% on the news, broke out of a consolidation, and set a new high. The technical outlook alone suggests a move to $1000 is coming, and the analysts are on board.
“Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations,” said Jensen Huang, founder and CEO of NVIDIA.
Analysts were slow to issue the first revisions, but they are rolling in. The first are from JPMorgan Chase and Citigroup, which raised their price targets, extending the trend set in 2023. Several firms have set targets at or above the $1000 level since the first of the year, with the highest target, $1200, set by Loop Capital in mid-February. As it is, NVIDIA Is the 2nd-most upgraded stock over the last twelve months and will likely claim the #1 position soon. The price target increased by 220% since last year and will likely continue rising.
NVIDIA has a blowout quarter, guiding higher
The risk with NVIDIA stock going into the Q4 release was an incredibly high revenue and earnings growth expectation. However, the company’s $22.1 billion net revenue, up 265% YOY, outpaced the consensus estimate by a strong 750 basis points.
The gains were driven by all four operating segments, led by a 410% increase in the data center group. Gaming, the company’s core business, is flat sequentially but up 56% YOY on end-market normalization. Pro Visual is up 105%, and the Automotive segment, down 4% YOY, showed an 8% sequential improvement as major OEMs lean into the new age of AI.
Margin news is also favorable to higher share prices. The company’s surge in revenue is leveraging significant margin gains that are showing on the bottom line. The GAAP earnings are up 765% YOY, and the adjusted earnings are up 486%, providing ample cash and free cash flow for the business. Margin strength is expected to continue in F2025 and may improve again. Analysts at Loop Capital (who forecasted the Q4 strength) expect the company’s business to continue accelerating and outperforming consensus expectations for the next 2-3 years.
Guidance is also favorable, expecting Q1 2025 revenue to accelerate sequentially by $2 billion or nearly 1000 basis points. More significantly, the guidance is about 1000 basis points above the Marketbeat.com analysts' consensus, playing into the idea that the analysts will raise their estimates and price targets for the stock.
A catalyst in NVIDIA cash flows
NVIDIA’s cash flows grew exponentially over the year, providing a sound footing for improved capital returns. The company already pays a dividend and repurchases shares but in token amounts. The dividend is barely enough to keep dividend-investing firms and funds interested, while repurchases did not offset dilutive action during the year.
Investors have a significant opportunity because the company’s cash position has doubled, cash flow is robust, and debt is in tight control. NVIDIA could easily increase the distribution amount, pay a special dividend, or increase its share repurchases. There is also a chance for a stock split now that it is up in the stratosphere. Regardless, business is good and led to a doubling of shareholder equity in F2024 that may be repeated in 2025.
The technical outlook: NVIDIA moves to new highs
The price action in NVIDIA was mixed immediately after the report, but once profit takers took a seat, it moved solidly higher in premarket trading. The market is up about 15% and trading at a new high with a high probability of continuing higher in the near, mid and long terms. The risk is that profit takers will step back once the session opens and cap gains near $765. In this scenario, NVIDIA may enter a consolidation before continuing its up trend. However, if NVIDIA’s market can sustain upward momentum now, it will likely reach the $1000 level before mid-year.
