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NVIDIA (NVDA) to Post Q2 Earnings: What's in the Offing?

Zacks Equity Research

NVIDIA Corporation NVDA is scheduled to report second-quarter fiscal 2020 results on Aug 15.

In the trailing four quarters, the company’s earnings surpassed the Zacks Consensus Estimate thrice and missed the same once, the average positive surprise being 3.94%.

Notably, in the last reported quarter, the company’s non-GAAP earnings per share of 88 cents topped the Zacks Consensus Estimate of 82 cents but tumbled 57% from the year-ago period. However, the bottom line improved 10% sequentially.

Revenues declined 31% year over year to $2.22 billion and also lagged the Zacks Consensus Estimate of $2.25 billion. Excess channel inventory post-crypto coupled with recent deteriorating end-market conditions impacted the top line.

Estimates and Guidance for Q2

For the second quarter of fiscal 2020, NVIDIA anticipates revenues of $2.55 billion (+/-2%).

The Zacks Consensus Estimate is currently pegged at $2.55 billion, indicating a drop of almost 18.5% from the year-ago reported figure.

Further, the consensus mark for earnings presently stands at $1.15, implying a plunge of 40.7% from the year-earlier reported number.

Let’s see how things are shaping up for the upcoming announcement.

NVIDIA Corporation Price and EPS Surprise

NVIDIA Corporation Price and EPS Surprise

NVIDIA Corporation price-eps-surprise | NVIDIA Corporation Quote

Factors to Impact Q2 Results

NVIDIA has been witnessing a downward trend since last October due to waning demand for gaming and data center GPUs as well as zero revenues from cryptocurrency mining processors.

Management expects slowdown in data center spending by hyperscale and enterprise customers to persist in the fiscal second quarter. Consequently, the company, refrained from providing a guidance for the ongoing fiscal year on its last earnings call due to low visibility of data center demand.

Additionally, shortage of Intel INTC processors is likely to remain a headwind to the sales of gaming GPUs for laptops in the soon-to-be-reported quarter.

Nonetheless, the company expects a recovery in its core gaming segment, backed by solid growth in mid-end gaming. Normalization in channel inventory level is anticipated to aid sequential growth in gaming revenues in the upcoming quarterly results.

Moreover, NVIDIA’s confidence in its strategies and growth opportunities in ray-traced gaming, rendering, high-performance computing, AI and self-driving cars is something to look forward to.

Growing demand for Nvidia's Tesla T4 GPU is an uptrend. Growth in inference revenues, bolstered by a broad-based adoption across a number of hyperscale cloud providers is likely to be a steady tailwind in the June quarter.

The company is also expected to gain from increasing Pro Visualization revenues, driven by strength across both desktop and mobile workstation products. Moreover, autonomous vehicle development deals and the rising uptake of AI-based smart cockpit infotainment solutions are likely to drive automotive revenues in the to-be-reported quarter.

What the Model Says

The proven Zacks model conclusively shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has significantly high chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

NVIDIA currently has a Zacks Rank #3, which increases the predictive power of ESP. However, its Earnings ESP of 0.00% in the combination makes surprise prediction difficult for the stock this reporting cycle.

Stocks to Consider

Following are a few stocks worth considering from the same space with the right mix of elements to beat estimates this earnings season:

CACI International, Inc. CACI has an Earnings ESP of +4.02% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ciena Corporation CIEN has an Earnings ESP of +5.26% and a Zacks Rank of 3.

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