Nvidia’s NVDA fourth quarter results impressed Wall Street back in February, with the GPU powerhouse once again showing its ability to expand its data center and cloud computing business. NVDA shares have surged nearly 30% in 2020, against the S&P 500’s 11% decline.
Nvidia’s outlook remains strong despite the ongoing coronavirus economic downturn. This means now is time to see what to expect from its upcoming Q1 earnings results that are due out on May 21 to help investors decide if they should consider buying NVDA stock.
Nvidia is a GPU giant and it will continue to play its part in the global gaming industry that is projected to grow from $151 billion in 2019 to nearly $200 billion by 2022. Last quarter, gaming unit sales climbed 56% against an easy-to-compare period and accounted for nearly 50% of total revenue.
Perhaps more importantly, its data-center division jumped 43% to reach a new record of $968 million and crush analyst estimates. The company’s growth within the vital cloud computing and data-center market has captured Wall Street’s attention because Microsoft MSFT, Amazon AMZN, and other have proved that the cloud is in the future. Fellow chip firms, Intel INTC and Advanced Micro Devices AMD also reported solid results for their data-center businesses in the fourth quarter.
Chips & the Pandemic
Nvidia is still subject to the cyclical nature of the broader semiconductor industry. That said, NVDA has also expanded its portfolio and its presence within artificial intelligence, 5G, autonomous vehicles, and more. “We are well positioned for the greatest technology trends of our time,” CEO Jensen Huang said in prepared remarks last quarter.
On the coronavirus front, Nvidia warned investors about the potential impact in its fourth quarter release on February 13. The company lowered its Q1 revenue outlook by $100 million to account for the potential impact of the coronavirus. It is worth remembering that NVDA’s reduced guidance came well before the coronavirus turned into a global pandemic and shut down large chunks of the global economy.
Nvidia also officially closed its $7 billion acquisition of Mellanox Technologies during the virus downturn on April 27, roughly a year after it was first announced.
The deal is NVDA’s largest ever and was made to help bolster its data center expansion and more. “Our combined expertise, supported by a rich ecosystem of partners, will meet the challenge of surging global demand for consumer internet services, and the application of AI and accelerated data science from cloud to edge to robotics,” NVDA’s chief executive said in prepared remarks.
Before we look ahead to see what to expect from Nvidia, investors will see that its stock is trading near its highs and it has crushed its industry over the last 12 months. NVDA stock has soared over 70% in the last year and broke out above its fall 2018 highs earlier in the year after suffering an extended selloff.
NVDA closed regular trading Wednesday at rough $298 a share. This puts its about 5% off the highs that it hit following its Q4 release. Its recent run has stretched its valuation picture.
Yet, Nvidia is still trading below its three-year highs of 15.4X forward 12-month sales estimates at 13.3X. Plus, investors have been willing to pay a significant premium for NVDA compared to the broader semiconductor market for five years now.
Nvidia also pays a dividend and its balance sheet is strong. The company ended its fiscal 2020 with roughly $11 billion in cash, cash equivalents, and marketable securities, against $2.6 billion in debt.
Our current Zacks estimates call for NVDA’s Q1 fiscal 2021 revenue to jump roughly 35% from the year-ago period to reach $2.99 billion. It is worth remembering that Nvidia’s sales fell 31% in Q1 FY20, with its full-year revenue down approximately 7%.
With this in mind, Nvidia’s full-year fiscal 2021 revenue is projected to jump 19.8% to hit $13.08 billion. Plus, its FY22 sales are expected to climb another 15.2% higher to come in at $15.06 billion.
At the bottom end of the income statement, Nvidia’s adjusted first quarter earnings are projected to soar 92% to reach $1.69 a share. On top of that, NVDA’s adjusted full-year EPS figures are expected to climb 27.6% and 19.6%, respectively in fiscal 2021 and 2022.
Nvidia has a strong history of quarterly earnings beats, which includes outpacing our bottom-line estimates by an average of 10.6% over the trailing four periods. The nearby chart also shows that Nvidia’s earnings estimates are up big from before it released its Q4 results, despite some small coronavirus setbacks.
In fact, NVDA’s Q1 consensus estimate is still up 1.2% in the last 60 days, with its fiscal year figure down just 2.51%. This earnings positivity helps NVDA hold a Zacks Rank #2 (Buy) at the moment. Nvidia also sports an “A” grade for Growth in our Style Score system and is part of an industry that rests in the top op 33% of our more than 250 Zacks industries.
Nvidia stock could fall if its results or guidance disappoint Wall Street on May 21. Nonetheless, longer-term investors might want to consider buying NVDA as a growth-focused chip stock that is prepared to expand within cloud computing, gaming, and more.
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