NVIDIA Corporation (NVDA Quick QuoteNVDA - Free Report) reported better-than-expected third-quarter fiscal 2024 results and provided strong guidance for the fourth quarter.

For the third quarter, NVIDIA reported non-GAAP earnings of $4.02 per share, which beat the Zacks Consensus Estimate by 19.6%. Moreover, the reported figure soared a whopping 593% year over year while increasing 49% sequentially. The robust increase in earnings was mainly driven by higher revenues and improvement in gross margin.

Third-quarter revenues more than doubled on a year-over-year basis and climbed 34% sequentially to $18.12 billion. The robust growth in the top line was mainly driven by record sales in the Data Center end market and recovery across the Gaming and Professional Visualization end markets due to the normalization of channel inventory. The top line also beat the consensus mark of $16.19 billion.

NVIDIA reports revenues under two segments — Graphics and Compute & Networking.

Graphics includes GeForce GPUs for gaming and personal computers, the GeForce NOW game-streaming service and related infrastructure. The segment also offers solutions for gaming platforms, Quadro GPUs for enterprise design, GRID software for cloud-based visual and virtual computing and automotive platforms for infotainment systems.

Graphics accounted for 19% of fiscal third-quarter revenues. The segment’s top line soared 64% year over year while increasing 12% sequentially to $3.48 billion. Our third-quarter revenue estimate for Graphics segment was pegged at $3.36 billion.

Compute & Networking represented 81% of fiscal third-quarter revenues. The segment comprises Data Center platforms and systems for artificial intelligence, high-performance computing and accelerated computing, the DRIVE development platform for autonomous vehicles and Jetson for robotics and other embedded platforms.

Compute & Networking revenues soared 284% year over year and 41% sequentially to $14.65 billion. Our third-quarter revenue estimate for this segment was pegged at $12.7 billion.

Market Platform’s Top-Line Details

Based on the market platform, Gaming revenues increased 81% year over year while growing 15% sequentially to $2.86 billion and accounted for 15.8% of the total revenues. The year-over-year surge reflects increased sales to channel partners following the normalization of inventory. The company noted that quarter-on-quarter growth was primarily driven by increased sales of its GeForce RTX 40 series GPUs (graphics processing units) due to back-to-school and holiday seasons.

The company believes that Gaming has doubled in comparison to pre-covid times and this is benefiting NVIDIA’s gaming revenues. Our estimate for the Gaming end-market’s third-quarter revenues was pegged at $2.78 billion.

Revenues from Data Center (80.1% of revenues) jumped 279% year over year and 41% from the previous quarter to $14.51 billion. This year-over-year and sequential rise was mainly driven by a boost in its HGX platform and Infi-Band solution. The segment also experienced traction from its Cloud Service Provider (CSP) customer base both in Hyperscale and GPU-specialized CSPs globally. Our estimate for this end-market’s third-quarter revenues was pegged at $12.5 billion.

Professional Visualization revenues (2.3% of revenues) increased 108% year over year and 10% sequentially to $416 million. The segment is growing on the back of NVIDIA RTX and Omniverse Platform. Our estimate for the Professional Visualization end-market’s third-quarter revenues was pegged at $416.8 million.

Automotive sales (1.4% of revenues) in the reported quarter totaled $261 million, up 4% on a year-over-year basis and 3% sequentially. The year-over-year rise was mainly driven by the ramp-up of self-driving platforms based on NVIDIA DRIVE Orin SoC by several new energy vehicle makers. Additionally, the Automotive segment is also experiencing growth as more and more Global Original Equipment Manufacturers are investing in AI-cockpit solutions.  Our estimate for this end-market’s third-quarter revenues was pegged at $257.7 million.

OEM and Other revenues (0.4% of revenues) remained unchanged year over year, while increased 11% sequentially to $73 million. Our third-quarter revenue estimate for this end market was pegged at $67.7 million.

Balance Sheet and Cash Flow

As of Oct 29, 2023, NVDA’s cash, cash equivalents and marketable securities were $18.28 billion, up from $16.02 billion as of Jul 30, 2023. As of Oct 29, 2023, the total long-term debt was $8.45 billion, down from $9.70 billion at the end of the second quarter.

NVIDIA generated $7.33 billion in operating cash flow, up from the year-ago quarter’s $392 million and the previous quarter’s $6.35 billion.

The free cash flow was an inflow of $7.04 billion compared with the year-ago quarter’s outflow of $156 million and the previous quarter’s inflow of $6.05 billion.

In the third quarter, the company returned $99 million to shareholders through dividend payouts and repurchased stocks worth $3.81 billion. During the first nine months of fiscal 2024, the company paid out $296 million in dividends and bought back stocks worth $7.01 billion.

At the end of the quarter, it had a remaining share-repurchase authorization of approximately $25.24 billion, which has no expiration time.

NVIDIA announced a quarterly cash dividend of 4 cents per share, payable on Dec 28, 2023, to shareholders of record on Dec 6, 2023.

Guidance

For the fourth quarter of fiscal 2024, NVIDIA anticipates revenues of $20 billion (+/-2%), higher than the Zacks Consensus Estimate of $17.85 billion.

The GAAP and non-GAAP gross margins are projected at 74.5% and 75.5%, respectively (+/-50 bps). GAAP and non-GAAP operating expenses are estimated at $3.17 billion and $2.20 billion, respectively.

GAAP and non-GAAP other income and expenses, excluding gains and losses from non-affiliated investments, are anticipated at approximately $200 million.

The GAAP and non-GAAP tax rate for the quarter is estimated at 15% (+/- 1%).

During the first-quarter earnings results, the company had estimated to make capital expenditures between $1.10 billion and $1.30 billion during fiscal 2024, including principal payments on property and equipment.

Zacks Rank and Other Stocks to Consider

Currently, NVIDIA sports a Zacks Rank #1 (Strong Buy). Shares of NVDA have gained 241.8% year to date.

Some other top-ranked stocks from the broader technology sector are 3D Systems (DDD Quick QuoteDDD - Free Report) , NetEase (NTES Quick QuoteNTES - Free Report) and Dropbox (DBX Quick QuoteDBX - Free Report) , each flaunting a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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The Zacks Consensus Estimate for NetEase's fourth-quarter 2023 earnings has been revised upward by 9 cents to $1.73 per share in the past 30 days. For fiscal 2023, earnings estimates have increased by 42 cents to $6.96 per share in the past 30 days.

NTES' earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing the same on one occasion, the average surprise being 16.63%. Shares of NTES have gained 60.4% year to date.

The Zacks Consensus Estimate for Dropbox's fourth-quarter 2023 earnings has remained unchanged for the past 90 days at 48 cents per share. For fiscal 2023, earnings estimates have been revised 7 cents upward to $1.96 per share in the past 30 days.

DBX’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 13.14%. Shares of DBX have climbed 24.8% year to date.