Over the past year, NVIDIA's (NASDAQ:NVDA) stock has rocketed to the stratosphere, up some 300%, and that means the GPU maker's financial results are more scrutinized than ever. When NVIDIA announces fourth-quarter earnings results on Thursday, Feb. 9, investors will be looking to see if it can prove itself worthy of its rich valuation.
NVIDIA's gaming and automotive segments had generated impressive growth of 63% and 61%, respectively, in the fiscal third quarter. Analysts are expecting this growth to have continued in the fourth quarter.
For all the talk about NVIDIA's efforts in artificial intelligence and autonomous vehicles, gaming revenue is the largest operating segment and has been the main driver of growth in recent quarters, so it is important this segment continues to post strong results.
Gaming revenue will be the main focus
So far in fiscal 2017, gaming revenue is up 35% to $2.7 billion. NVIDIA has powered growth in its largest segment by continuing to innovate with the new Pascal GPUs. These new GPUs are starting to drive an upgrade cycle for PC gamers. High-end graphics cards are not cheap, so the question will be whether there was a strong enough lineup of PC games on the market in the fourth quarter to encourage gamers to upgrade.
On this front, NVIDIA may already have good news. On Intel's Jan 26 quarterly conference call, management cited gaming as an area of strength in its business during the quarter. Advanced Micro Devices also reported strong results driven by GPU sales. We'll find out soon if NVIDIA shared in its competitors' success.
No matter how strong the gaming segment performed in the recent quarter, investors will be more interested in how NVIDIA handles upcoming hurdles. One potential hurdle is competition from AMD's re-entry into the high-end GPU market with its Vega GPU. If AMD takes back some of the market share it lost, NVIDIA will face a difficult year-over-year comparison with financial results in the last two quarters of fiscal 2018.
Automotive segment is small but growing fast
Unlike the potential near-term challenges in the gaming segment, NVIDIA's opportunities with autonomous vehicles are big enough that it should continue growing the automotive segment. At the recent 2017 Consumer Electronics Show, NVIDIA announced a partnership with Audi to produce a self-driving car by 2020. Management will likely get questions from analysts about the near-term and long-term implications for NVIDIA's automotive segment as a result of this announcement.
Automotive revenue for the first nine months in fiscal 2017 grew 58% to $359 million. The segment represents less than 10% of NVIDIA's total revenue, but this could quickly become a billion-dollar business if NVIDIA can continue applying its DRIVE PX 2 platform with other manufacturers throughout the transportation industry.
Analysts are expecting NVIDIA to report $0.83 in earnings per share, which would represent more than 100% growth year over year. Once NVIDIA reports its actual results for the fiscal fourth quarter, all attention will be on management's outlook for the next quarter.
Analysts already have high expectations looking out through the fiscal first quarter. As of this writing, analysts are expecting nearly 100% growth year over year in earnings for the first quarter of fiscal 2018. Therefore, investors should pay close attention to how management characterizes the year ahead.
All in all, NVIDIA's momentum will continue as long as there is growing demand for its gaming GPUs -- driven by a steady release schedule of quality games -- and as long as NVIDIA is successful in applying its GPU technology to a variety of industries. In that respect, management's comments about existing and new partnerships will be important.