Nvidia (NVDA) is by far one of the brightest performers in the semiconductor, and one of the brightest momentum files. Shares have nearly doubled YTD and have been up nearly $ 300 since March. Quarterly earnings are right around the corner, posted Wednesday after hours, and the report could make or break Nvidia’s high flight.
Data provided by YCharts
The company has come a long way since the misery of 2018 and 2019, and is on track to continue to show earnings growth – EPS for the quarter is expected to come close to $ 2 per share, round the levels of numbers from Q1 2019. Nvidia has seen promising growth YoY in both GPU / data centers and gaming, yet data center growth has been much higher.
Of the Q1 results, Nvidia saw 80% YoY growth in data center revenue to $ 1.14 billion and the introduction of the A100 GPU, as well as other product launches. Gaming revenue grew 27% YoY (but was 12% down on a QoQ basis) to $ 1.34 billion, while the company also announced more than 100 new models of laptops with GeForce and RTX GPUs.
Much of that strength is likely to continue through Q2 and the end of the year, with new console releases later in the year and a new chip release being extended after a few weeks time and added to growth.
The growth of Nvidia’s data center should remain relatively unchallenged in terms of AI, despite the steps that Intel (INTC) is taking with Tiger Lake and Xe LP. Nvidia has “a whole ecosystem full of libraries and models specifically designed for [the] CUDA architecture, “and combine that with the advances the company is making in deep learning (such as DLSS 2.0), should keep an eye on the growth figures while separating from Intel’s competition.
A100 also has the “biggest generation performance jump ever … with strong assumptions about leading hyperscalers”, which is expected by going to the quarter. The launch of the A100 and related products has high value in terms of quarterly results – the upcoming results could see datacenters revenue hops above gaming for the first time, with Mellanox revenues also contributing to the beginning of this quarter, after the purchase was finally closed.
Playing is still unbearable. Nvidia’s power in gaming comes just before the launch of new consoles and after the expansion of GeForce Now, laptops with RTX processors and the launch of Minecraft with RTX and DLSS 2.0. However, gaming is still unlikely to see the same strengths as Q1 with the relatively relaxed orders of stay-at-home that prompted upticks in video games and screen time.
Q1 showed strong demand in gaming products, and Q2 should show similar strengths in demand with the releases since Q1 was made. But as ‘staying home’ [was] ride> 50% increase in hours played on GeForce platform, “the slow opening of the economy has probably led to a decline in hours played. Minecraft with RTX could bring some power, but metrics for higher performance of RTX and of DLSS 2.0 could bring revenue for gaming up 10% or so QoQ.
Revenue contributions from ProViz, auto and OEM / IP, although decent, may still be hindered for the quarter.
ProViz finds most of its revenue comes from “media & entertainment, architecture, engineering and construction, [and] public sector. “While the transition to work-from-home was offset by the need for workstations in ‘health care, media & entertainment, and higher education’, construction and engineering are likely to have a small effect on demand. ProViz may still be able to find strength in the long run from “expanding creative and design workflows [and] mobile workstations. “
Auto will probably be the laggard of the revenue drivers for Nvidia. Quarterly revenue has not changed much since Q3 2019, and since “‘informatainment’ and autonomous car spending is expected to decrease for the next several quarters,” the company may not see the same 22% CAGR within cars.
China and Taiwan are the two leading geographic segments of Nvidia through revenue, and although China was heavily impacted in Q1 with its lockdowns, a relatively rapid reopening of the nation should have reduced supply chain tensions and brought back demand for gaming. The two combined account for about half of Nvidia’s revenue, so strength added at replay and gaming demand should drive total revenue higher by 5% or 6% (~ $ 150 million).
Nvidia’s momentum has not gone unnoticed – it has achieved Street-high price targets ranging from $ 500 to $ 540 ahead of what strong revenue can be driven by gaming winds and data center strengths. If that’s likely to be the case, stocks could have already baked into much of the good news, trading just below $ 500 and 7.5% below a $ 300 billion market capitalization threshold.
A strong earnings report is needed to keep momentum running, as Nvidia has closed above its 20-day moving average since March 24, almost 5 months straight. If revenue is as strong as expected, given the new releases in gaming, relative geographical strength in China and Taiwan, growth of data centers at the top of the A100, and ahead of upcoming chip releases, there is nothing to prevent Nvidia from crossing to $ 530-550 by the end of September, or even up to $ 600 + by the end of the year. However, if data center performance or growth comes below expectations or if game headwinds prevent significant YoY growth due to the transition back to “normality” outside the house, Nvidia’s path would be back to its moving average generated support.
Announcement: I / we have no positions in named shares, and no plans to initiate positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose supply is mentioned in this article.
