Futu Research | What is the value of the investment in British India?

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After the 22nd of May, Eastern Time, $ INVEDA (NVDA.US) $The release of FY25Q1 (natural season 24Q1) delivered a surprise response to the market, with the stock price surging by 6% above $1,000.

As a result of the wave of AI transformation, corporate profits continue to double in real terms. In the quarter, the company generated real income of $260, YoY +262%, EPS after dilution of $5.98, YoY +629%, adjusted diluted EPS of $6.12, YoY +461%.

After the release of the financial statements, the company announced that it will split 1 share into 10 shares, which is expected to reduce investor demand and increase the liquidity of the shares.


Part 1: Where is the momentum for continued growth and can it continue to support the high growth rate of ENVIDA?

Part 2: What is the value of Invida's investment?

First, data center growth is strong, Blackwell chips will be expected to drive sales growth in Q2

Photo: Yingweda Corporation Structure

Source of Materials: Bloomberg, Futu Securities Management
Source of Materials: Bloomberg, Futu Securities Management

Source of Materials: Bloomberg, Futu Securities Management

Data center business is a major source of YWADA revenue and profit, accounting for $226 and +427% YoY in the quarter, mainly driven by strong and growing demand for AI training and reasoning, particularly strong demand for Hopper chips。

So can the data center business continue to grow at a high rate?


(1) In terms of downstream customers, Inveda's customers mainly come from cloud services, consumer Internet companies, and automotive customers, etc., basically covering global tech giants, including Amazon, Google, Microsoft, Meta, Tesla, etc. And from the quarterly financial data, these tech giants increased capital expenditures to strengthen AI infrastructure construction, demonstrating the huge demand for AI chips.

(2) From the point of view of upstream customers, the current AI demand is still very strong, mentioned after the release of sales data in April. The world's largest chipmaker certifies strong demand for AI, no doubt giving the market a boost.


(1) The world is upgrading from general-purpose computing to accelerated computing transformation. In addition to Hopper chips, enterprise custom AI service needs, sovereign country supercomputing platforms (based on Grace Hopper superchips), NVIDIA AI Enterprise software stack service needs are high, and the data center business is expected to continue to benefit.

(2) At the same time, the first solo network revenue was announced for the quarter of USD 32, YoY +242%, thanks to the strong growth of InfiniBand end-to-end solutions, which is expected to be one of the new growth points in data center business revenue. The Spectrum-X Ethernet solution is being mass-produced with multiple customers, and the product line is expected to grow to $10 in value within a year, according to the company's management disclosure.

In the future, revenue from software services will become a source of revenue for a company's longer lifecycle.

3. Inveda has a strong soft and hard competitive edge, and the new Blackwell chip will be available in Q2

(1) The iterative ability of the company's hardware technology is staggering, and the continued introduction of more powerful AI chips will leave rivals far behind. The company announced that Blackwell chips will be shipped in Q2 and will increase production in three quarters and can be deployed in customer data centers in four quarters, which is expected to generate significant revenue for the company. At the same time, Blackwell chips can be downwardly compatible with existing Hopper architectures, without worrying that the launch of Blackwell chips will lead customers to abandon the purchase of Hopper chips. In addition, the company's management layer is revealed to accelerate the update speed of the chip architecture, from a two-year update to a one-year update. Such efficient technology iterations and updates keep Invida at the forefront of AI chips.

(2) In addition to hardware products, software ecosystems such as CUDA Programming Environment, TensorRT Reasoning Optimization Library, RAPIDS Data Analysis Library are an important part of building Yanda's competitive advantage, enabling it to meet rapidly responsive and customized services for businesses of different industries and sizes to meet complex computing needs, and Improved customer stickiness and increased the cost of customer switching chip-switching systems.

Figure: Data Center Business Revenue (USD Million)

Source of Materials: Bloomberg, Futu Securities Management
Source of Materials: Bloomberg, Futu Securities Management

Source of Materials: Bloomberg, Futu Securities Management

Second, the game business is determined by AI PC, professional visualization and the stable growth of automotive business

Revenue from the company's games business for the quarter was $26.5, up 18% year-on-year and down 8% year-on-year, mainly due to a decline in seasonal sales. GeForce RTX Supers GPU market acceptance is high, with a healthy level of terminal demand and channel inventory across the entire product line.

The future growth of the gaming business lies with AI PCs. The company has already equipped CUDA Tensor Core in GeForce RTX GPUs, laying the groundwork for future AI PCs. Currently, GeForce RTX GPUs have installed more than 1 percent, demonstrating NVIDIA's broad user base and strong market penetration in gaming and AI. NVIDIA has a full stack of technologies to deploy and run fast and efficient generative AI reasoning on GeForce RTX PCs. Earlier today, NVIDIA and Microsoft announced AI performance optimizations for Windows to help increase LLM runtime on NVIDIA GeForce RTX AI PCs by 3x. The growth of the gaming business in the future will focus on the development of AI PCs.

Figure: Game Business Revenue (Million Dollars)

Source of Materials: Bloomberg, Futu Securities Management
Source of Materials: Bloomberg, Futu Securities Management

Source of Materials: Bloomberg, Futu Securities Management

Professional visualization and automotive business grew steadily, but did not have a significant impact on overall performance due to small volumes.


(2) The automotive business generated $3.29, up 11% year-on-year, driven mainly by the growth of automated driving, such as Xiaomi's first electric car, the SU7, with the NVIDIA DRIVE Orin automated driving platform. NVIDIA DRIVE Thor, the next-generation automated driving platform, will use the new NVIDIA Blackwell architecture and is expected to begin mass production next year.

Third, there is still room for improvement in gross profit growth

Gross margin reached a new all-time high and EPS increased twice as much as sequential. The Company's GAAP gross margin continued to increase to 78.4% and non-GAAP gross margin to 78.9% in the quarter, a clear increase mainly due to high gross margin Hopper GPU chips, lower inventory costs and lower upstream component product costs. EPS doubled, after dilution EPS was $5.98, YoY +629%, adjusted post-dilution EPS was $6.12, YoY +461%.

Chart: Interest Rate Situation

Source of Materials: Bloomberg, Futu Securities Management
Source of Materials: Bloomberg, Futu Securities Management

Source of Materials: Bloomberg, Futu Securities Management

The operating expense rate has been reduced, and cost control is excellent. Operating expenses in the quarter increased 39% compared to the same period last year and adjusted operating expenses increased 43% year-on-year, mainly driven by salaries and benefits, reflecting the increase in employees and salaries. However, the overall operating expense ratio fell to 13.4%, reflecting the company's excellent cost control capabilities and further dilution of costs as a result of scale.

Figure: Total Operating Costs (US$ Million)

Source of Materials: Bloomberg, Futu Securities Management
Source of Materials: Bloomberg, Futu Securities Management

Source of Materials: Bloomberg, Futu Securities Management

Free cash flow is growing strongly, and free cash flow is expected to exceed $600 for the whole year. Due to the rapid growth of the company's net profit, the company's free cash flow for the quarter was $149.36, YoY +461% YoY, and it is expected to have a free cash flow of more than $600 in FY25. As of fiscal year 2024, the Company's cash and cash equivalents were US$314bn, higher than $153m in the same period last year and US$260m in the previous quarter.

Figure: Free Cash Flow (Million Dollars)

Source of Materials: Bloomberg, Futu Securities Management
Source of Materials: Bloomberg, Futu Securities Management

Source of Materials: Bloomberg, Futu Securities Management

There is still room for improvement in shareholder returns. Shareholders returned $78 million in the quarter, including share buybacks of $77 million and a dividend of $9800 million. The company currently has a residual buyback of US$148, while the company announced a 150% increase in the quarterly cash dividend from US$0.04 per share to US$0.10 per share. The return on equity of 25 financial year companies is expected to be 1%, which is at a relatively low level. With the FY25 free cash flow expected to exceed $600, there is still room for upside for shareholder returns.

What is the value of Invida's investment?

Overall, Inweida continues to benefit from growing AI demand, with record growth in business size and profitability. Leveraging the advantages of hardware technology and CUDA ecological advantages, Inveida is expected to maintain an unbeatable market position in the fierce competition.


Corporate earnings are expected to continue to grow at a high rate, driven primarily by increased revenue from the data center business. The reasons include several of the key factors mentioned above:

(1) AI requirements remain strong through upstream and downstream data imprinting.

(2) Data center business revenues are diversifying. In addition to hardware chip sales revenue, Sovereign AI, enterprise customized AI services, AI Enterprise software stack services, network solutions revenue, etc., are expected to be new growth points. In the future, software service revenue is expected to be a source of revenue for the long life cycle of the company.

(3) The company has a strong soft and hard competitive edge. Hardware technology and products are accelerating, chip architecture updates have accelerated from a two-year update to a year-on-year update, and the new Blackwell chips will be released in Q2, allowing Inveida to stay ahead in the AI chip space. At the same time, software ecosystems such as CUDA have improved product compatibility and improved customer stickiness, increasing the cost of customer switching chip-switching systems, becoming the company's main competitive advantage.

Based on the company's performance guidance, FY25Q2 average revenue is forecast to be R$280, above market expectations. GAAP and non-GAAP gross margins are 74.8% and 75.5%, respectively, with full-year gross margin expected to be around 70%. In addition, operating expenses are expected to increase by around 40% throughout the year.

Looking at the start of Q2, the company's EPS growth has started to double, and EPS growth is expected to slow down gradually after FY25. Overall, under strong AI demand and excellent cost control, EPS growth is expected to be around 100% for FY25.

2. Shareholder Returns

The return on equity of 25 financial year companies is expected to be 1%, which is at a relatively low level. With the FY25 free cash flow expected to exceed $600, there is still room for upside for shareholder returns. Assuming full cashflow is eliminated, the return on equity in FY25 is expected to reach 2.56%, which is still not high.

Therefore, Invida's share price growth is mainly dependent on the high growth of its performance. Whether the growth rate can be sustained will be determined by the impact on Inveda's share price. If the growth rate of Inveda is slowed, it will have a negative impact on valuations. We expect FY25 EPS to double, calculated from a post-financial share price above $1000. The current PE valuation is around 35-40x, which is relatively reasonable and could still support the current share price.

AI is a long-term development trend, and as a “salesman” in the AI industry, the value of long-term investment is unquestionable. Investors now need to pay more attention to whether more cutting-edge technologies and broader needs emerge in the AI field that can drive the growth of the AI industry, thereby benefiting Invida. Be alert to the risks of the need for de-escalation, competitive overkill, and technological alternatives.

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