NVIDIA Corporation (NASDAQ:NVDA) is slated to report its fiscal third-quarter 2019 earnings after the market close on Thursday, Nov. 15.

The graphics processing unit (GPU) specialist is going into earnings surrounded by considerable investor uncertainty. Shares of NVIDIA, which closed at $199.31 on Tuesday, have plunged 30% since hitting their all-time closing high of $289.36, set on Oct. 1. This brings their return in 2018, through Tuesday, down to just 3.5% -- the same return as the S&P 500.

The stock's recent big drop can largely be attributed to overall market headwinds. The S&P 500 declined 6.8% last month, with the semiconductor space getting hit much worse due to concerns of slowing demand for chips. 

Fueling concern about the chip market in general and NVIDIA's business in particular, NVIDIA's discrete GPU archrival Advanced Micro Devices released third-quarter earnings in late October that missed Wall Street's revenue expectation. Along with the revenue miss, the company issued weak fourth-quarter guidance, resulting in the market sending shares of AMD down more than 15% on Oct. 25.  

A person's facial profile overlaid on a digital background -- concept for AI.

Image source: Getty Images.

NVIDIA's key Q3 numbers

Here are the year-ago period's results and Wall Street's estimates to use as benchmarks. 

Metric

Fiscal Q3 2018 Result

Fiscal Q3 2019 Wall Street Estimate

Projected Growth (YOY)

Revenue

$2.64 billion

$3.24 billion

22.7%

Adjusted earnings per share (EPS)

$1.33

$1.71

28.6%

Data sources: NVIDIA and Yahoo! Finance. YOY = year over year.

Wall Street is expecting NVIDIA's revenue and earnings to rise about 23% and 29% year over year, respectively. These are relatively modest growth projections for NVIDIA, which has been growing like gangbusters over the last couple of years. (Reasons for the expected slowdown are discussed in the next section.) For context, here's how fast the company's revenue and adjusted EPS grew year over year in the prior six quarters:

  • Q2 Fiscal 2019: 40% revenue and 92% adjusted EPS growth.
  • Q1 2019: 66% and 141%.
  • Q4 2018: 34% and 52%.
  • Q3 2018: 32% and 41%.
  • Q2 2018: 56% and 91%.
  • Q1 2018: 66% and 141%.

Investors should be prepared for a possible big move in NVIDIA stock -- either up or down. The company has been regularly breezing by earnings expectations for some time, which has trained market participants to expect big beats. So shares could be hit hard if NVIDIA fails to turn in a notable beat. That said, expectations probably have come down recently, thanks to disappointing earnings results and outlooks from other chip companies. This could help temper the market reaction with respect to the current quarter's results.

Focus on Q4 guidance

It's probably safe to predict, however, that the market won't be tempered in its reaction if NVIDIA provides more tepid fourth-quarter guidance than the Street is expecting. Here's a chart to help you gauge how the Q4 outlook the company will provide stacks up to the Street's expectations.

Metric

Fiscal Q4 2018 Result

Fiscal Q4 2019 Wall Street Estimate

Projected Growth (YOY)

Revenue

$2.91 billion

$3.4 billion

16.8%

Adjusted EPS

$1.78

$1.81

1.7%

Data sources: NVIDIA and Yahoo! Finance. YOY = year over year

As the chart shows, Wall Street expects NVIDIA's revenue and earnings growth to slow considerably in the fourth quarter, which ends in late January 2019. One major reason for this is the company will have largely lapped by a year its rollout of its data center products based on its Volta GPU architecture. While NVIDIA began shipping these products in the second quarter of last fiscal year, it didn't ramp up until the third and fourth quarters. In other words, the year-over-year comparables for data center get more difficult in the third and fourth quarters.

Another reason for the Street's weak outlook is the falloff in sales of GPUs to the cryptocurrency market that began last quarter due to the plunge in crypto prices earlier this year. Sales of application-specific GPUs for "mining" digital currencies, such as Ethereum, accounted for about 0.6% of total revenue last quarter, way down from 9% in the first quarter. 

Gaming and data center should remain the dynamic duo

Gaming and data center, NVIDIA's two largest target markets by revenue, should continue to drive growth. (Professional visualization and automotive are the company's other target market platforms.) For some context, in the second quarter, gaming's revenue jumped 52% year over year to $1.81 billion, accounting for 58% of the company's total revenue of $3.12 billion, and data center's revenue soared 83% to $760 million, comprising 24% of total revenue. 

Gaming's results will reflect early demand for the company's new GeForce RTX 20-series graphics cards, which started to roll out in late September. These high-end cards, powered by NVIDIA's new Turing GPU architecture, are the first consumer graphics cards with ray-tracing capabilities. Ray tracing simulates the "physical behavior of light to bring real-time, cinematic-quality rendering to even the most visually intense games," touts NVIDIA. In August, the company unveiled three Quadro workstation GPUs based on Turing, though these GPUs -- aimed at game designers and others -- weren't expected to become widely available until the fourth quarter.

A quarter is just a quarter

Long-term investors shouldn't place too much weight on NVIDIA's results in any single quarter or two. Some periods will be weaker than others because of the timing of major new product launches. Rather, focus on annual growth and future growth opportunities.

NVIDIA is the top dog in two markets that have fantastic long-term growth potential. It's the dominant supplier of graphics cards for computer gaming, and its GPUs are the gold standard for artificial intelligence (AI) training in data centers. Moreover, the company is positioning itself to be a big winner when driverless vehicles hit the streets en masse.

Beth McKenna owns shares of Nvidia. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has no position in any cryptocurrencies mentioned. The Motley Fool has a disclosure policy.