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An Early Nvidia (NVDA) Q4 Earnings Preview

Benjamin Rains

Shares of Nvidia NVDA surged nearly 6% during regular trading Thursday, along with fellow chip firms Micron MU and Texas Instruments TXN, on the back of strong earnings reports from major industry players. However, shares of NVDA slipped after hours and in early trading Friday in response to disappointing earnings from industry giant Intel INTC.

With that said, Nvidia stock is down roughly 40% over the last six months. So, let’s take a look at what to expect from Nvidia’s upcoming fourth-quarter financial results that are due out in February to see if NVDA stock can regain any momentum.

Quick Overview

Nvidia has long been a graphics chip powerhouse. The firm has benefited from the rise of gaming and looks poised to do so for years to come through the expansion of esports and the desire for more life-like graphics. Today, Nvidia’s chips also help power everything from data centers and cloud computing to artificial intelligence and machine learning. But we should note that video gaming still comprises more than half of its business.

Nvidia last year launched new GPUs based on its much-anticipated Turing architecture. The firm boasted last November that Turing had received the fastest adoption of any server GPU in history, including from Alphabet's GOOGL Google Cloud Platform. NVDA will continue to roll out its new Turing-based chips and will likely draw more well-known users like Microsoft MSFT. “Turing is Nvidia’s most important innovation in computer graphics in more than a decade,” CEO and founder Jensen Huang said at a conference in August.

Despite its new chips and its 21% top-line growth during the third quarter, NVDA stock has tanked over the last six months. Nvidia, like Advanced Micro Devices AMD and other chipmakers, suffered from a downturn in cryptocurrency-related revenues in Q3 as demand from miners faded. Making matters worse, Nvidia has faced extremely high expectations that made it hard to impress investors.

NVDA stock was down 2.77% to $153.46 a share in mid-morning trading Friday, which marked a roughly 48% downturn from its 52-week high of $292.76 per share.

 

Q4 Outlook

Looking ahead, Nvidia is projected to see its fourth-quarter revenues fall 7.2% from the year-ago period to hit $2.70 billion, based on our current Zacks Consensus Estimate. A quarterly downturn is never a good sign and this would mark Nvidia’s first revenue decline in more than five years.

Things don’t look much better for Nvidia on the bottom end of the income statement. Nvidia is expected to see its adjusted quarterly earnings tumble 18.6% to reach $1.40 per share. Looking a bit further ahead, the firm’s Q1 fiscal 2020 earnings are projected to plummet nearly 31% from the year-ago period.

Bottom Line

Nvidia is a Zacks Rank #3 (Hold) at the moment based on its mixed earnings estimate revision activity. With that said, it appears that the combination of NVDA’s strong run and the relatively cyclical nature of the chip industry will likely hurt Nvidia in the fourth quarter and in its fiscal 2020. 

Nvidia is currently expected to release its Q4 financial results on February 14, but the company has yet to officially make an announcement.

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