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Semiconductor Stocks' Earnings on Nov 9: NVDA and MSCC

Zacks Equity Research

We are in the last leg of the Q3 earnings season, with 406 S&P 500 members or 85.4% of the index’s total membership having already reported their numbers, as of Nov 3, according to the latest Zacks Earnings Preview.

Among the various sectors, Technology has emerged as one of the outperformers. Per the latest Earnings Preview, 85% of the sector’s market cap in the S&P 500 index has already reported, as of Nov 3. According to the report, approximately 81.8% of the companies delivered positive earnings surprises, while 86.4% of the companies beat top-line expectations.

Earnings of these companies are up 22.4% from the same period last year on 9.3% higher revenues, mainly driven by solid performance of tech heavyweights such as Facebook FB, Apple AAPL Alphabet GOOGL, Microsoft and Intel.

We note that the technology sector has been a strong performer on a year-to-date basis. The sector is benefiting from rising demand for cloud-based platforms, growing adoption of Artificial Intelligence (AI) solutions, Augmented/Virtual reality devices, autonomous cars, advanced driver assisted systems (ADAS) and Internet of Things (IoT) related software.

We believe the above discussed emerging trends have provided some much-needed opportunity to semiconductor companies to counter the loss of business due to the shrinking PC market which still consumes bulk of chips.

However, this does not ensure likely earnings beat for all companies in the space. It should be noted that a company’s earnings outperformance is dependent on the overall business environment as well as management’s ability to implement operating and strategic plans.

In other words, a company may perform dismally despite a favorable business environment if it fails to capitalize on the opportunities due to lack of execution.

Notably, our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP, the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Let’s see what’s in store for these two semiconductor stocks, both are scheduled to release their numbers tomorrow.

Graphic chip maker NVIDIA Corporation NVDA will release third-quarter fiscal 2018 results. The Zacks Consensus Estimate for earnings and revenues are pegged at 94 cents and $2.36 billion respectively. Estimates, when compared with the year-ago quarter’s actual figures, indicate remarkable growth of 13.3% for earnings and 18% for revenues. The company has an ESP of +0.71% and sports a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation Price and EPS Surprise


NVIDIA Corporation Price and EPS Surprise | NVIDIA Corporation Quote

The analysts covering the stock expect NVIDIA to benefit from increasing strength in the AI space. Moreover, the company’s innovative product pipeline, along with strength in gaming and high-end notebook GPUs, keeps it well positioned. NVIDIA’s efforts toward autonomous vehicle also exhibit its intention to be the largest player in the self-driving and machine learning arena as well.

The company’s data-center segment is likely to fuel its tremendous growth, mainly backed by the solid adoption of AI, deep learning, high-performance computing (HPC), and GRID technologies. Also, the higher adoption of NVIDIA’s Tegra processors will act as a catalyst, going forward. (Read more: Artificial intelligence to Drive NVIDIA's Q3 Earnings)

Let’s take a sneak peek at Microsemi Corporation MSCC, an OEM of a broad range of high-reliability and analog/mixed signal integrated circuits, which is slated to report fourth-quarter fiscal 2017 figures. The Zacks Consensus Estimate for earnings and revenues are pegged at $1.08 and $474.9 million respectively. Estimates, when compared with the prior-year quarter’s actual figures, indicate growth of 18.9% for earnings and 5.5% for revenues. The stock has an ESP of -0.16% and carries a Zacks Rank #3.

Microsemi Corporation Price and EPS Surprise


Microsemi Corporation Price and EPS Surprise | Microsemi Corporation Quote

The company’s data-center segment is likely to continue its outperformance in the to-be-reported quarterly results, chiefly driven by the sound adoption of the latest technologies, including AI and HPC. Increasing usage of its smart-controller solutions on Intel’s (INTC) Parley platform is also anticipated to prove conducive to growth.

Furthermore, the company’s Industrial market segment is estimated to perform well in the quarter. During the last reported quarter’s conference call, Microsemi noted that it projects modest but continued strength in the industrial end markets against the backdrop of a slowly improving economy and energy markets, continuing semi-cap strength, as well as demand for emerging industrial automation and motor control applications.

However, the company’s communication end market’s growth may be adversely affected by softness in China, which might significantly offset the benefit from the sturdy growth estimated for the aforementioned segments.

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