NVDA stock

Nvidia stock has fallen about 11% over the past 12 months. Justin Sullivan/Getty Images. Nvidia's revenue forecast for the current quarter came in above ...

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Nvidia's stock popped 17% in after-hours trading after the company's Q4 results came in better than expected on the strength of its automotive division.

[ expected $6 billion](https://www.forbes.com/sites/digital-assets/2023/02/20/nvidia-investors-focus-on-the-future-after-rough-year/?sh=4484650c2953). More information on product launches and the company’s strategy towards AI is expected to be released during Nvidia’s developer conference in March, according to several analysts. The unit made $226 million in sales during the quarter, down 65% from last year and 4% below what Wall Street expected. [Nvidia’s](https://www.forbes.com/companies/nvidia/?sh=37e4d2981c85) stock popped 17% in after-hours trading after the company’s Q4 results came in better than expected on the strength of its automotive division. The division is home to the Nvidia Omniverse, the company's vision for an industrial metaverse that provides simulations for developing artificial intelligence-based robots and autonomous vehicles. Sales for the division came in at $294 million, 13% higher than forecasts.

Nvidia shares jumped Wednesday, as the graphics-chip specialist sold more gaming chips and forecast stronger revenue than Wall Street was expecting.

This downtick follows roughly 33% growth in 2022 and 26% growth in 2021,” Stifel analysts wrote in a preview of the report this week. Nvidia reported fourth-quarter net income of $1.41 billion, or 57 cents a share, compared with $3 billion, or $1.18 a share, in the year-ago period. Nvidia forecast first-quarter revenue of $6.37 billion to $6.63 billion, while analysts on average were estimating earnings of 85 cents a share on revenue of $6.31 billion for the first quarter. illustrates expectations for a 3% decline in spending from the top seven cloud-service providers, in aggregate, in 2023. “While we expect AI-focused investments to remain a priority and potentially escalate as competition heats up, we remain wary of expectations for significant slowing in overall data-center capex spending in 2023.” Adjusted earnings, which exclude stock-based compensation expenses and other items, were 88 cents a share, compared with $1.32 a share in the year-ago period. Gaming sales reached $1.83 billion, while analysts on average were expecting $1.59 billion, according to FactSet. Data-center sales rose 11% to $3.62 billion from a year ago, missing analysts’ average forecast of $3.85 billion. The new cloud-based offering will go beyond offering the higher level of computational abilities that Nvidia gear can provide, and include access to Nvidia software. Kress said data-center sales are expected to grow sequentially and year over year, “accelerating past Q1.” “As we scale, software standalone going forward, it will be a driver,” Kress told MarketWatch. has just gone through the roof over the last 60 days,” Huang said.

NVIDIA Corporation beat Q4 2022 estimates on both lines. Read more to see why I do not want to buy into NVDA stock at current prices.

But the performance wasn't great during the quarter -- revenues and profits dropped quite a lot, and the year-over-year decline will be substantial in the current quarter as well. The broad market is trading at around 17x forward earnings right now -- if Nvidia hits the 2029 EPS estimate and trades at 17x net profits at that time, its shares would drop to $180 over the next six years. But even when we take the $2.3 billion at face value, that gets us to around $9 billion in annualized profits -- for a company that is valued at around $550 billion, that's not a lot of profit. And that is perfectly fine, of course, as long as the valuation is appropriate for a solid business performance -- which isn't the case for Nvidia, however. This gets us to what I believe is the key issue for Nvidia's shares -- the high valuation. Even if Nvidia were to trade at 25x net profit in 2029, which would represent a premium valuation in absolute terms, shares would climb by just 18% over the next six years, to $265. Bulls might decide to focus on the expected improvement on a sequential basis, while bears might decide to focus on the worsening year-over-year performance. [AMD](https://seekingalpha.com/symbol/AMD)) has recorded a data center revenue growth rate of 42% during the fourth quarter -- around 4x the growth Nvidia recorded (AMD also recorded revenue growth of 16% for Q4, versus a steep revenue decline for Nvidia). As one of the most important suppliers of these GPUs, Nvidia is negatively impacted by this macro issue -- not only is it selling fewer GPUs to miners, but weakening demand has also hurt market prices for new and used GPUs, which also negatively impacts Nvidia's sales potential. As a result of the better-than-feared announcement, Nvidia's shares shot up to the $220s in after-hours trading, up 9% at the time of writing. But as consumers are now free to pursue other activities again, such as traveling, dining out, and going to concerts, demand for gaming equipment has fallen -- especially since many gamers still have modern or up-to-date equipment that they bought in the recent past. A 21% revenue decline never is good news, and it especially isn't good news when we are talking about a growth company that is trading at a pretty high valuation.