With a $2.35 trillion market cap, NVIDIA Corporation (NVDA) has had an exceptional year so far. Following a stellar 2023, NVDA’s stock has already surged nearly 92% since January. Moreover, the stock has gained over 200% in the past year.
This surge in NVIDIA has been fueled by its explosive growth in the AI and data center markets, making it one of the most talked-about and desirable stocks. With a high of just under $955 in yesterday’s session, expectations are mounting for the stock to hit four digits soon.
Ahead of Nvidia’s earnings, Stifel analyst Ruben Roy increased his price target on the stock from $910 to $1,085, citing that he expects Nvidia to again surpass expectations on the top and bottom lines and raise its guidance for the next quarter.
The company’s results have been bolstered by solid demand for its chips from hyperscalers, including Amazon (AMZN), Alphabet Inc. (GOOGL), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT), and others. As a result, the first-quarter earnings report will serve as a crucial gauge of the industry’s appetite for further AI investment.
Also, Bank of America analyst Vivek Arya raised his price target on NVDA stock from $925 to $1100 while maintaining a “Buy” rating.
Let’s analyze how Nvidia’s stock price appreciation could lead to higher dividend payouts.
Dominance in AI and Data Center Markets
The U.S., led by NVIDIA, dominates the generative AI (GenAI) tech market. With the launch of ChatGPT in November 2022, the rise of GenAI gained substantial momentum.
From consumer-facing applications, foundational technology such as large language models (LLMs), cloud infrastructure, and semiconductors crucial for operations, U.S. companies hold a market share ranging from 70% to an impressive 90% across several segments of the generative AI landscape.
According to Statista, the global generative AI market is expected to reach $36.06 billion in 2024. Further, the market is projected to grow at a CAGR of 46.5%, resulting in a market volume of $356.10 billion by 2030. In global comparison, the U.S. is estimated to have the largest market share, totaling $11.66 billion this year.
Moreover, NVDA, a leading tech player, commands a market share of around 92% in the data center GPU market for GenAI applications.
Nvidia’s success extends beyond its cutting-edge semiconductor performance, owing to its software capabilities. The widely adopted CUDA development platform, introduced in 2006, has become a fundamental tool for AI development, amassing a user base of more than 4 million developers.
The company’s chips are essential in powering technology like Google’s Gemini and OpenAI’s ChatGPT. Also, META has placed a sizable order of 350,000 H100 GPU graphics cards from Nvidia. In line, MSFT has spent billions of dollars buying chips from the chipmaker.
Unveiled New Generation AI Graphics Processors
In March 2024, NVDA announced its next-generation chip architecture named Blackwell and related products, including its latest AI chip, B200. The latest GPUs are expected to dramatically boost developers’ ability to build advanced AI models.
The new GPU platform succeeds the company’s Hopper architecture, which was launched two years earlier and helped send NVDA’s business and stock surging.
Blackwell GPUs, containing 208 billion transistors, can enable AI models to scale up to 10 trillion parameters. It will be incorporated in Nvidia’s GB200 Grace Blackwell Superchip, which connects two B200 Blackwell GPUs to a Grace CPU.
The new AI chips are expected to ship later this year.
“Generative AI is the defining technology of our time,” said Nvidia CEO Jensen Huang during a keynote address at the company’s developers conference in San Jose, California. “Blackwell GPUs are the engine to power this new industrial revolution. Working with the most dynamic companies in the world, we will realize the promise of AI for every industry.”
With Blackwell’s superior performance, the chipmaker aims to solidify its dominance in the data center GPU market.
Outstanding Fourth-Quarter Financials
For the fourth quarter that ended January 28, 2024, NVDA’s revenue increased 265.3% year-over-year to $22.10 billion. That exceeded analysts’ expectations of $20.55 billion. It reported a record revenue from the Data Center segment of $18.40 billion, up 409% from the prior year’s period.
“Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations,” said Jensen Huang.
He added, “Our Data Center platform is powered by increasingly diverse drivers — demand for data processing, training and inference from large cloud-service providers and GPU-specialized ones, as well as from enterprise software and consumer internet companies. Vertical industries — led by auto, financial services and healthcare — are now at a multibillion-dollar level.
The chipmaker’s gross profit was $16.79 billion, an increase of 338.1% year-over-year. Its non-GAAP operating income rose 563.2% year-over-year to $14.75 billion. Its non-GAAP net income grew 490.6% from the previous year’s quarter to $12.84 billion.
Also, Nvidia posted non-GAAP earnings per share of $5.16, compared to the analysts’ estimate of $4.63, and up 486% year-over-year.
NVDA’s non-GAAP free cash flow was $11.22 billion, up 546.1% from the previous year’s period. The company’s total current assets were $44.35 billion as of January 28, 2024, compared to $23.07 billion as of January 29, 2023.
“Fundamentally, the conditions are excellent for continued growth” in 2025 and beyond, Huang told analysts. He noted that the robust demand for the company’s GPUs is expected to persist, fueled by the adoption of generative AI and an industry-wide shift from central processors to Nvidia’s accelerators.
Further, NVIDIA predicts revenue of $24 billion for the first quarter of fiscal 2025. The company’s non-GAAP gross margin is anticipated to be 77%.
Potential for Increased Dividend Payouts
As Nvidia's revenue and profits soar significantly, the company will likely consider increasing its dividend payouts, benefiting long-term investors. NVIDIA paid its quarterly cash dividend of $0.04 per share on March 27 to shareholders of record on March 6. The company’s annual dividend of $0.16 translates to a yield of 0.02% at the current share price.
Currently, Nvidia's dividend yield is modest compared to its tech peers, but its substantial cash flow and strong balance sheet provide ample room for growth. By increasing dividends, the company can attract a broader base of income-focused investors, further supporting its stock price.
Bottom Line
NVDA’s remarkable rise so far this year can be attributed to its dominance in the AI and data center markets, fueled by the growing demand for its chips from tech giants such as Amazon, Google, Meta, Microsoft, and more.
Moreover, Nvidia’s recent announcement of its next-generation chip architecture, Blackwell, and related products demonstrates its commitment to innovation and maintaining its competitive edge. With Blackwell's superior performance, Nvidia aims to consolidate its dominance in the data center GPU market.
Analysts are highly optimistic about the chipmaker’s prospects. Analysts expect NVDA’s revenue and EPS for the fiscal 2025 first quarter (ended April 2024) to increase 242% and 411.9%year-over-year to $24.59 billion and $5.58, respectively. Also, the company topped consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
As NVDA continues to expand its market share and generate higher revenue and profit, the company naturally accumulates more cash reserves. With ample cash in hand, it can increase its dividend payouts without compromising its ability to fund ongoing operations or invest in future growth opportunities.
Increased dividends will be a positive signal to the market, reflecting Nvidia’s confidence in its long-term prospects and its commitment to returning value to shareholders. This move can also enhance investor sentiment, particularly among those looking for stable income streams in addition to capital appreciation.
In conclusion, NVDA stands at the forefront of the tech industry, driving innovation and shaping the future of AI. Given its outstanding financial performance, technological leadership, and potential for dividend growth, Nvidia is an attractive investment opportunity for long-term investors.
