While hundreds of companies will report quarterly results in August, there are two that stand out. NVIDIA (NASDAQ:NVDA), the leader in the graphics card market, will need to keep up its recent pace of growth in order to justify its increasingly lofty valuation. And brick-and-mortar retail giant Wal-Mart (NYSE:WMT), faced with a tectonic shift toward e-commerce, has its hands full returning to earnings growth while taking on the Amazon.com juggernaut. Here's what investors need to know about these two companies.
The graphics card king
NVIDIA has consolidated its lead in the discrete graphics card market over the past two years, claiming a nearly 80% unit market share during the first quarter and leaving Advanced Micro Devices (NASDAQ:AMD) with the scraps. At the same time, NVIDIA's push into the data center, pitching its GPUs as ideal accelerators for artificial intelligence and machine learning tasks, has created a fast-growing business for the company.
NVIDIA will report its second-quarter results after the market close on Aug. 11. The stock has been on fire over the past year, up about 175%, as investors have increasingly bet that the company's profits will soar in the future. NVIDIA is at the center of a buzzword trifecta -- artificial intelligence, virtual reality, and self-driving cars -- and investors can't get enough of the company's stock.
With NVIDIA stock now trading for more than 50 times last year's earnings, the company will need to impress when it reports its second-quarter results. Sales of its high-end gaming GPUs have been consistently strong, and that's unlikely to change with AMD offering no real alternative at the moment. But further market share gains will be tough, especially with AMD going after the mainstream portion of the market aggressively. And NVIDIA's growth businesses, including data center and automotive, are still small relative to the core PC GPU business.
With the stock priced at an optimistic level, NVIDIA will need to show that it can produce the earnings growth that investors are expecting.
Everyday low prices
Retail behemoth Wal-Mart expects its earnings to decline during the second quarter, results for which it will announce on Aug. 18. The company has been making major investments in higher wages for its employees, new training programs, and e-commerce, sacrificing profits in the short-term in an effort to drive growth and customer satisfaction in the long-term. Wal-Mart expects to produce between $0.95 and $1.08 in per-share earnings, compared to $1.08 during the second quarter of last year.
Already, some of these initiatives are bearing fruit. The U.S. business has reported positive comparable sales for seven quarters in a row, and customer service scores are improving. The e-commerce business is growing, albeit slowly, as Wal-Mart expands initiatives like its ShippingPass program and its online grocery pickup service.
Wal-Mart's $3 billion acquisition of e-commerce start-up Jet demonstrates how much of a priority online sales have become for the company. Jet launched last year to substantial buzz, promising to undercut Amazon on price by offering discounts based on how many items shoppers buy. With the Jet acquisition, Wal-Mart is following the same strategy that it always has -- offering the lowest prices possible.
Investors shouldn't expect much improvement when it comes to profitability anytime soon, as Wal-Mart doesn't expect meaningful earnings growth to return until fiscal 2019. But the company needs to keep showing progress, particularly positive comparable sales growth in its U.S. business. A surprise drop in sales would likely undo some of the stock's gains this year.