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Should You Buy Nvidia (NVDA) Stock Ahead of Earnings?

Benjamin Rains
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Should You Buy Nvidia (NVDA) Stock Ahead of Earnings?

Nvidia (NVDA) saw its stock price surge over 1.7% Tuesday after the chipmaker officially unveiled its much-anticipated, eighth-generation GPU architecture. Nvidia's new Turing line of graphics chips is the company's "most important innovation in computer graphics in more than a decade," according to CEO Jensen Huang. But the Turing GPUs won't help NVDA's Q2 financial results, so let's see if the stock is still worth buying ahead of Thursday's earnings release.

Nvidia NVDA saw its stock price surge over 1.7% Tuesday after the chipmaker officially unveiled its much-anticipated, eighth-generation GPU architecture. Nvidia’s new Turing line of graphics chips is the company’s “most important innovation in computer graphics in more than a decade,” according to CEO Jensen Huang. But the Turing GPUs won’t help NVDA’s Q2 financial results, so let’s see if the stock is still worth buying ahead of Thursday’s earnings release.

Overview

Nvidia showed off its Turing GPU’s at a conference in Vancouver on Monday after a nearly two-year wait. The company’s Turing line brings ray tracing to real-time graphics, which should help computer and video game graphics appear more lifelike and realistic than ever before due to the ability to trace the path of light as it interacts with objects. “Hybrid rendering will change the industry, opening up amazing possibilities that enhance our lives with more beautiful designs, richer entertainment and more interactive experiences,” Huang said at the conference. “The arrival of real-time ray tracing is the Holy Grail of our industry.”

Nvidia’s announcement clearly has many investors excited. The new graphics cards with Turing technology will be available in the fourth quarter and look poised to be in high demand in both the gaming sector and the quickly growing data center industry. Yet, even without these new chips, Nvidia’s business remains strong despite the drop in demand from cryptocurrency miners as its gaming unit continues to play a major role in the multibillion-dollar industry.

Last quarter the firm’s gaming division soared 68% to reach $1.72 billion, while its total Q1 revenues surged 66% from $1.94 billion in the year-ago period to $3.21 billion. Meanwhile, the company’s ever-growing data center business skyrocketed 71% to reach $701 million. Nvidia boasts data center clients that include giants Amazon AMZN, Microsoft MSFT, and Alphabet GOOGL—which have all invested heavily in chips that power their new artificial intelligence ventures.

Stock Price Movement

Nvidia has been one of the best-performing stocks over the last three years, with shares of NVDA up roughly 1,000%, which destroys its industry’s 117% climb. More recently, NVDA stock has cooled off a bit, yet it has still climbed over 313% during the last 24 months. 

The last year has still been kind to Nvidia, with its stock price up roughly 56%. However, the firm has experienced much more turbulence during the last 12 months.

 

 

Valuation

Nvidia’s impressive run hasn’t stretched the company’s valuation picture as much as some might assume, which is a great sign for investors. NVDA is currently trading at 35.7X forward 12-month Zacks Consensus EPS. This does mark a massive premium compared to its industry’s 11.5X average—which includes the likes of Intel INTC, Advanced Micro Devices AMD, and Texas Instruments TXN—and looks far more expensive than Micron’s MU 4.6X.

Investors should be pleased to see that Nvidia stock has traded as high as 57.4X over the last year, with a one-year median of 41.5X. NVDA is currently trading above its year-long low of 32.9X, but its valuation picture is hardly stretched at the moment.

Outlook

Nvidia is projected to see its Q2 revenues jump by just over 39% to hit $3.11 billion, based on our current Zacks Consensus Estimate. Meanwhile, the firm’s gaming unit is projected to soar by over 48% to $1.76 billion, based on our exclusive NFM estimates. On top of that, Nvidia’s data center business is projected to hit $760.6 million, which would represent another impressive 83% climb from the $416 million the company reported in the year-ago period.

At the other end of the income statement, NVDA is expected to see its adjusted quarterly earnings jump 81% to reach $1.83 per share. However, the company’s EPS projection has remained flat over the duration of the quarter, which signals that analysts’ earnings sentiment hasn’t changed in either direction.

Bottom Line

Nvidia is currently a Zacks Rank #3 (Hold) but does rock an “A” grade for Growth in our Style Scores system. Investors should also note that the firm has a great management team that hasn’t seen Nvidia miss quarterly earnings estimates at any point in the the last seven years. Plus, with its new, potentially game-changing line of GPUs set to launch soon, now might be time to scoop up Nvidia stock.

Nvidia is set to release its second-quarter financial results after the closing bell on Thursday, August 16.

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