NVIDIA (NVDA) is having a glorious year, but it faces a growing Chinese threat.
NVIDIA reports incredible growth for the quarter ending on 31 July 2023. For example, Stockrow estimates NVIDIA’s revenue grew by 101.48% in the quarter ending on 31 July 2023. Impressively, NVIDIA’s quarterly revenues grew from $7.192 billion on 30 April 2023 to $13.507 billion on 31 July 2023.
Hence, NVIDIA’s revenues grew by $6.315 billion in a quarter. In contrast NVIDIA’s revenues grew by 3.03% in the quarter ending on 31 July 2022. NVIDIA’s quarterly revenues grew from $6.704 billion on 31 July 2022.
Incredible Profits and Growth at NVIDIA
This growth leads to incredible profits at NVIDIA (NVDA). For example, the quarterly gross profit grew from $6.648 billion on 30 April 2023 to $9.462 billion on 31 July 2023.
Furthermore, the quarterly gross profit grew from $2.915 billion on 31 July 2022. Incredibly, NVIDIA’s quarterly revenues grew from $499 million on 31 July 2022 to $2.14 billion on 30 April 2023 to $6.8 billion on July 31 July 2023.
Additionally, NVIDIA’s quarterly operating cash flow grew from $1.27 billion on 31 July 2022 to $2.911 billion on 30 April 2023 to $6.348 billion on 31 July 2023. Plus, the quarterly ending cash flow grew from -$874 million on 31 July 2022 to $5.079 billion on 30 April 2023 to $803 million on 31 July 2023.
Conversely, NVIDIA’s cash and short-term investments fell from $17.037 billion on $17.037 billion on 31 July 2022 to $15.320 billion on 30 April 2023. However, the cash and short-term investments rose to $16.03 billion on 31 July 2023.
In contrast, NVIDIA’s Total Assets grew from $43.476 billion on 31 July 2022 to $44.46 billion on 30 April 2023 to $49.555 billion on 31 July 2023. Hence, NVIDIA added $5.095 billion in a quarter.
Impressively, NVIDIA has less debt. For example, NVIDIA’s total debt fell from $11.141 billion on 30 April 2023 to $8.456 billion on 31 July 2023. Thus, NVIDIA shed $2.685 billion in debt in a quarter.
Is there a Chinese Threat to NVIDIA?
Hence, NVIDIA (NVDA) is a healthy company. However, many observers think Chinese chip makers could threaten NVIDIA.
For example, the value of Chinese commodity semiconductor chips grew from $100 billion in 2014 to around $380 billion in 2022, Chip War’s Godfree Roberts estimates. To explain, commodity chips are cheap low-power semiconductors and transistors that perform most of the computing tasks in machines, such as vehicles.
Chinese commodity chip production has grown over threefold since 2014 because of heavy government investment in the industry, Roberts notes. Roberts thinks this makes the Semiconductor Manufacturing International Corporation (SMIC) a threat to US chip makers. SMIC is China’s largest semiconductor maker or foundry.
Tellingly, SMIC made the advanced semiconductor chips Huawei uses to power its Mate60 Pro+ 5G smartphone, NBC News reports. SMIC’s Kirin 9000 chips give the Mate 60 Pro+ rapid internet speeds through a 5G network.
Huawei’s September 2023 unveiling of the Mate 60 Pro+ shocked American observers. To explain, the observers thought US government restrictions blocked Huawei’s access to advanced semiconductor technology. Importantly, Huawei and SMIC are participating in the Chinese government’s initiative for semiconductor self-reliance, the Center for Strategic & International Studies (CSIS) reports.
Thus Chinese companies can duplicate American semiconductor technology. Plus those companies have government support for their efforts. American experts note US technology export controls did not stop the development of the seven manometer chips Huawei sues in the Mate60 Pro+ phones. Consequently, the CSIS calls semiconductor export controls “strategically useless.”
How Great is the Chinese threat to NVIDIA (NVDA)?
Therefore, I conclude there is a Chinese threat to NVIDIA (NASDAQ: NVDA). However, that threat could be years away.
Chinese companies spent $300 billion importing high-end chips such as NVIDIA’s H100 graphics processing unit (GPU), Chip War’s Roberts estimates. Thus, China is an important market for high-end chips NVIDIA could soon lose.
I think it could take several years or a decade for Chinese companies to match NVIDIA’s capabilities. However, I think they will. I suspect Chinese leaders grasp this reality.
Unlike their American counterparts, Chinese leaders play a long game. For example in 2015, Chinese President Xi Jinping appointed official Liu He to plan for a US chip embargo. Yet, President Joe Biden’s (D-Delaware) administration did not launch the embargo until 2022.
Thus, Chinese leaders and executives are ready for several years of pain as they launch their advanced chip manufacturing. However, at some point I predict SMIC and its partners, Advanced Micro-Fabrication Equipment (AMEC) and Naura, could compete with NVIDIA. However, I think that threat is years away.
NVIDIA (NVDA) is still a wonderful stock
Conversely, I think NVIDIA (NVDA) shareholders will enjoy several more years of dividends, share value growth, and more cash.
For example, NVIDIA’s share price grew from $144.01 on 7 November 2022 to $457.51 on 6 November 2023. Thus, NVIDIA’s share price grew by a $313.50 in a year. Plus, NVIDIA’s market cap $406.05 billion on 7 November 2022 to $1.13 trillion on 6 November 2023. Thus, NVIDIA’s market capitalization grew by $723.50 million in a year.
Consequently, I consider NVIDIA the best growth stock today. Plus, NVIDIA is a growth stock that will pay nine 4¢ dividends between 22 December 2023 and 29 September 2025. Optimists will wonder if those dividends will grow as NVIDIA’s cash and revenue grows. NVIDIA shares offered a 16¢ forward dividend and a 0.0354% dividend yield on 6 November 2023.
Thus, NVIDIA (NVDA) is still a wonderful stock that anybody who values growth and cash needs to examine. However, I think Mr. Market overpriced NVIDIA at $457.51 on 6 November 2023. NVIDIA is a stock to watch because I think it has years of growth ahead despite potential Chinese competition.
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