엔비디아, 데이터센터향 매출이 지배할 것이다(2021.12.17)

2021.12.17

12월17일 엔비디아의 주가는 278.01달러다.

이 글쓴이는 보유자는 보유할 것을 권하지만 추가 매수자는 현재 주가는 너무 비싸므로

264달러이하에서 매수할 것을 권했다.

 

Nvidia Stock: Data Center Will Dominate, But I'll Wait To Buy | Seeking Alpha

Summary

• Nvidia's business and technology is second to none and the company has proven it can create and lead multiple markets.
• 엔비디아의 실적과 기술은 최고이며 엔비디아는 여러 분야의 시장을 창출하고 이끌어갈 수있다는 것을 증명했다.
•  
• Data Center is set to take the reins in terms of revenue and is what investors should want; this division drives gross margins.
• 데이터센터는 매출면에서 선도적 위치를 차지하려 하고있고 투자자들이 원하는 것이다.
• 이 분야는 매출총이익을 이끌고 있다.
•  
• But the stock is pricing in a long runway of growth and won't achieve it in the timeframe needed to justify the valuation.
• 하지만 현재 주가는 너무 먼 미래 성장을 반영하기 때문에 비싸다고 볼수있다.
•  
• I'm content holding here but will add at $264 and below.
• 나는 보유할 것을 권하며 추매는 264달러 이하에서 할것을 권했다.
•  
• I do much more than just articles at Tech Cache: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

 

It's hard to find a company able to dominate one field in several markets. However, you can surely find companies dominating one field in one market.

여러 시장에서 한 분야를 지배하는 회사를 찾기는 어렵다.

그러나 한시장에서 한 분야를 지배하는 회사가 있다.

 

For example, Netflix (NFLX) dominates the streaming field in movies/shows, but not live sports or video games.

예를들어 넷플릭스는 영화와 드라마의 스트리밍 분야에서는 지배적인 회사이지만,

라이브 스포츠나 비디오 게임 분야에서는 그렇지 않다.

 

Finding a company dominating in one area, such as computing power, while doing so in different markets like gaming, data center, and professional rendering is hard to come by. But, NVIDIA (NVDA) fits the bill quite nicely. Its field of specialized computing power has become unmatched, growing revenue at outsized rates by creating new technology and use cases. This is driving accelerating growth which is being rewarded handsomely in the market as its Data Center division prepares to take the company's reins. But even so, I can't justify paying for it at these lofty valuations.

 

Don't get me wrong, I'm not only an avid Nvidia bull - with the record to prove it - but have also done very well investing in it. It has become one of my largest stock returns on a percentage basis in my investing career. And, as I will get to shortly, Nvidia's dominance is not set to wane anytime soon. But, even still, building a position above $300 has a lot more risk embedded in it as growth rates will have to extend higher for longer to match the valuation.

Great Business Strength On Two Fronts

Nvidia beating estimates and raising guidance is nothing new over the last several quarters. What is interesting, though, is its ability to continue growing the Gaming division during supply constraint times and seasonally weak quarters. This is apparent in the company's ability to grow Gaming revenue by 5.2% quarter-over-quarter in FQ3. Management expects this strength to continue, though. According to it, Gaming and Data Center will drive sequential growth for FQ4.

We expect sequential growth to be driven by datacenter and gaming more than offsetting a decline in CMP.

Nvidia CFO, FQ3 Earnings Call

The key part is the growth in Data Center is outpacing the growth of Gaming over the last few quarters.

As a result, I won't be surprised if Data Center matches or exceeds Gaming revenue for the first time since FQ2 '21 in the current quarter (FQ4 '22). And that's because Data Center growth has picked up over the last two quarters, exceeding Gaming's sequential growth.

지난 몇 분기동안 데이터센터 부문의 성장률은 게임밍분야 매출 성장률을 넘어섰다.

회계년도 2022년2분기에 데이터센터 분기 매출 성장률이 게이밍분야 매출 성장률을 앞선것이 놀랄 일은 아니다.

 

푸른색 막대는 엔비디아의 게이밍부문 매출, 주황색 막대는 데이터센터부문 매출이다.

회색선은 게이밍부문의 전분기대비 성장률, 노란색선은 데이터센터의 분기 성장률이다.

 

(Source: Chart mine, data from Nvidia's FQ3 '22 Quarterly Revenue Trend)

 

As the quarter-over-quarter lines on the secondary axis show, Data Center has accelerated growth since FQ4 '21, while Gaming growth has slowed since FQ1 '22. The large growth in FQ2 '21 has to do with the Mellanox acquisition, and because the growth I'm outlining starts in FQ4 '21, it becomes independent of Mellanox as the comparisons are Q/Q and not Y/Y. This is especially true after three quarters of nominal sequential growth between FQ3 '21 and FQ1 '22.

Now, I don't expect Data Center to grow sequentially at 24% or more in FQ4 '22, but I do expect it to grow faster than Gaming. Based on what we see from recent earnings from other companies like Broadcom (AVGO) and Marvell (MRVL), data center looks to be very robust heading into the end of the year. As a result, my estimates have 14% Data Center growth and 5% Gaming growth (Q/Q). While this is a deceleration for both divisions, I've left room for Data Center to make up the $35M difference in my calculations between it and Gaming for the crown of the company, should the overall quarter outperform my estimate.

Digging further, notice which division's Q/Q growth aligns with gross margins. And, more precisely, the makeup of Data Center's revenue share between it and Gaming is what is driving gross margin trends (calculated as (DC)/(DC+Gaming)), as shown below. Data Center moving into the number one position is exactly what investors should want as it drives gross margins higher. The Omniverse and Metaverse story aligns perfectly with a more significant Data Center division. And it helps Nvidia has been pushing for Data Center growth over the last several years, well before the Mellanox acquisition was announced in 2019, because the company is ahead of the curve needed in the tech industry to be ready for metaverse demands.

(Source: Chart mine, data from Nvidia's Quarterly Press Releases)

These are all great reasons why Nvidia is performing well on the business front and will continue to do so. There is assured strength in both of its main markets and is only seeing increasing, strong demand for GPUs in the data center and PC. As far as Nvidia's business goes, it's one of my favorites and has the greatest potential for creating new use cases and end-market demand through its ever-improving technology.

Where Business Meets Stock

The points I just discussed are why the stock's valuation has skyrocketed over the last several months - it's pricing in this continued growth and margins of the Data Center. However, when is the valuation too much for the market to handle?

Data by YCharts

With the price-to-sales ratio near relatively historical highs, the market is saying it expects 50% revenue growth to continue over the next three years. This, therefore, means the market is expecting consensus estimates to rise pretty significantly over the next year or so. As a result, the company would have to hit slightly above the 'High' estimate shown below for 2023 and 2024 to justify the valuation.

(Source: Seeking Alpha)

This isn't impossible for Nvidia, which has continued to raise the bar over the last two years, but getting to $49.50B in revenue in FY2024 (which is only a February 2023 beginning, as in a little over one year away) is not likely to happen without the ARM (ARMH) acquisition going through. At this point, it's not very likely it does, as there are mounting objections from all the key countries.

As I've already outlined, Nvidia's business is strong and has quite amazing potential to push technology further than it ever has and to capitalize on it richly. The question I have with the stock at or above a 30 P/S ratio is can it drive the same returns from here as it has up to this point? The company will have to prove it can outperform even more than its track record of raising guidance and then beating guidance by more than $1B (between the guidance raise and subsequent beat of consensus) per quarter to get to the lofty 2024 numbers needed.

Finding A Level To Add At

I originally shared these thoughts with my subscribers on November 24th, when the stock traded for $326 a share. The stock is now trading around $300, lower by 8%, and while this reduces risk, the stock is still riskier than I would prefer to add to my position. With high multiple stocks being targeted for selling over the last few weeks, Nvidia is a prime target for being hit similarly.

That being said, where am I comfortable to add?

A 20 or below blended forward P/S ratio to start would significantly reduce risk while still granting Nvidia a multiple worthy of consistently high growth. This implies a share price of $210. I don't foresee the stock getting there unless the market fears instability for growth or we have a market correction. If you're an absolute risk-averse growth stock investor, there's your target.

For those of us a little more risk-tolerant, I would put a P/S ratio of 20 against FY23's revenue estimates, which currently sits at $31.45B. This gives us a $248 target where one can add. Furthermore, adding a slight upside to the consensus estimates to account for steady beat and raises derives a $33.5B revenue estimate (still below the highest estimate for $34.40B) and equates to a share price of $264, a downside of 12% from Wednesday's levels.

 

I'll Be Patient

This doesn't mean I'm not constructive on the stock - perhaps it continues to move higher and estimates are raised over the next several months, in which case, I'm glad I'm holding. But that's exactly it; I'm holding my current position and looking to opportunistically add on dips if the market allows it. I'm bullish on the company but don't prefer the risk dished out by the current valuation.

I look forward to adding if the opportunity arises, but won't be upset if the stock continues higher.

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