There’s no denying the magnificent success of Nvidia Corporation (NASDAQ:NVDA), which once again delivered a record-breaking quarterly report. Indeed, the company continues to ascend to new summits, and remains the dominant force in the AI universe.
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“AI is going everywhere, doing everything, all at once,” shared CEO Jensen Huang, and his exuberance was certainly understandable.
Quarterly revenues of $57 billion were a sequential jump of 22% from the previous quarter, and also represented a 62% year-over-year leap. The company is pocketing substantial amounts of this cash, with both GAAP and non-GAAP gross margins north of 73%.
Still, worries of an AI bubble haven’t fully gone by the wayside. Despite the incredible numbers, NVDA shares have been trading mostly sideways since the November 15 earnings report.
Top investor Geoffrey Seiler understands some of this caution, and is raising his eyebrow at one growing figure in particular.
“While the report and guidance were strong, the one red flag with Nvidia’s report was that the company continues to see its accounts receivable balloon,” explained the 5-star investor, who is among the top 3% of stock pros covered by TipRanks.
Seiler notes that this figure shot up to $33.4 billion, a year-over-year increase of 89% that outpaced the company’s strong revenue growth. The investor points out that rapid surges with accounts receivable – or the amount of money owed for products that are already out the door – can signify collection issues.
Nvidia’s investments in its customers, such as OpenAI, make this an especially important metric to follow closely. Seiler details how Nvidia is in essence supplying some of the cash its customers are using to buy its chips.
“This type of circular financing likely isn’t sustainable over the long run,” the investor adds.
That being said, Seiler doesn’t currently view this as a dealbreaker. The investor points out that the “insatiable demand” for Nvidia’s chips isn’t showing signs of slowing down, as its CUDA software and NVLink interconnect solution provide a wide moat against the competition.
“I view the stock as a buy, with the caveat that I’d continue to monitor this risk,” sums up Seiler. (To watch Geoffrey Seiler’s track record, click here)
Wall Street’s enthusiasm hasn’t slowed down one iota. With 39 Buys – to go along with just one Hold and one Sell – NVDA cruises to a Strong Buy consensus rating. Its 12-month average price target of $257.26 implies an upside north of 40%. (See NVDA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.