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Red-Hot NVIDIA is a Solid Buy Ahead of Q1 Earnings

Tirthankar Chakraborty

Chipmaker NVIDIA Corporation NVDA is a global leader in the market for graphics processing units (GPUs), which are primarily used for running graphically-intensive video games. But of late, GPUs are also being used in an array of applications including cryptocurrency mining, AI and professional design. 

 

This has certainly helped NVIDIA progress by leaps and bounds, with its shares outperforming the broader S&P 500 over the past year, increasing more than 130%. 

 

Likewise, the company’s revenues have improved substantially. From Jan 31, 2017 to Jan 31, 2020, its revenues rose nearly 60%. Similarly, its market capitalization during the same period increased from $90 billion to $215 billion. Notably, NVIDIA’s fiscal year concludes in January.

 

Thus, several analysts who cover NVIDIA are bullish about the company’s earnings once it reports April-quarter results on May 21, after the closing bell. The chipmaker has escaped the negative impact of the coronavirus outbreak in the fiscal first quarter, thanks to strong demand for AIs in cloud data centers and rising engagement on video games owing to widespread stay-at-home orders.

 

The coronavirus crisis, which has been disrupting many industries, actually accelerated the adoption of AI in the fiscal first quarter. Subsequently, the growing clout of GPUs on account of increasing adoption of AI techniques in industries like cloud gaming and supercomputing domain certainly holds promise for NVIDIA in the said quarter.

 

NVIDIA, by the way, launched RTX Super gaming laptops in the fiscal first quarter on Apr 15 is expected to have fortified its leadership in the high end of the market. And this has most likely driven the company’s earnings performance. 

 

The RTX Super gaming laptops have more than 100 designs for every original equipment maker, including Acer, Asus, Lenovo and HP. Such laptops also have features like Dynamic Boost that shifts power between the GPU and central processing unit (CPU) to deliver the best performance during increased workloads like playing games.

 

At the same time, NVIDIA's GeForce graphics cards are being used by more than 200 million people. And almost 15% of such users upgraded to the latest RTX 20-series GPUs in January. And even more are expected to have upgraded in the fiscal first quarter, thanks to the stay-at-home situation and improving gaming technology. Needless to say, these developments bode well for the company’s first-quarter performance.

 

As a result, the company’s total revenues for the quarter ending April 2020 are expected at $3 billion, suggesting a 34.9% rise from the year-ago levels. Sales of gaming chips, in particular, are expected to increase nearly 25% from last year as Americans confine themselves to the virtual world of entertainment amid lockdowns.

 

 

Analysts widely expect the company’s fiscal first-quarter earnings per share to increase to $1.69 from 88 cents a year ago.

 

 

 

In fact, the Zacks Rank #2 (Buy) company has an Earnings ESP of +0.15%. Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or #3 (Hold) increases the chances of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation Price and EPS Surprise

Encouraging results, no doubt, will lead to a rally in the share price. The company’s expected earnings growth rate for the current quarter and year is 49.2% and 29.5%, respectively. For the next year, the company’s projected earnings growth rate is 20.8%.

 

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