Overnight, NVDA reported 4Q and full year results. What struck me:

–revenue was up by 22%, quarter on quarter, despite a falloff in business with China due to US government restrictions on sales of advanced chips there. Revenue was up by 265% yoy.

–the gross margin was 76%, up 12.7 points yoy ,,,but up by 2.0 points q on q. I interpret this as saying that unit selling prices have been rising much, much faster than production costs but that this source of operating leverage is beginning to disappear. Usually not a good thing. On the other hand, the company says it has hit a “tipping point” where demand growth is accelerating, suggesting that this will be able to offset part or all of the diminishing operating leverage

–on the other hand, operating expenses were $3.2 billion for the quarter, flattish q on q and up by 23% yoy. Again a source of positive operating leverage, though a less powerful one than the gross margin.

The result of all this is that sales were up in Q4 by 265% yoy. Earnings grew by 765%, triple the size of sales growth, because of the two sources of operating leverage just described.

If we annualize 4Q eps, the stock is now trading at about 38x forward earnings. If we think revenue is going to double in the coming year–implying eps will do something modestly more than that–then the stock is trading at maybe 18x. In the latter case, the stock is cheap. In the former, it’s less of a slam dunk. For the first time in a long while, however, these questions are important ones to have answers for.