Game time is almost here! NVIDIA (NVDA 3.46%) is slated to report its third-quarter results for fiscal 2020 after the market close on Thursday, Nov. 14.
The graphics processing unit (GPU) leader is going into its report on a solid note, with investor optimism likely high. While last quarter's results slid on a year-over-year basis, as expected, both the top and bottom lines were up sequentially and earnings comfortably beat the Wall Street consensus estimate.
Investors sent shares of the tech stock up 7.3% on the day following the Q2 release and the love fest has continued: Through Nov. 8, NVIDIA stock has returned 39.8% since its second-quarter report on Aug. 15, versus the S&P 500 index's 9.1% return. In 2019, shares have returned 56.1%, compared with the broader market's 25.5%. And shares are now in the green for the one-year period, returning 1.5%, versus the S&P 500's 13.5%.
NVIDIA stock lost just over half of its value in the fourth quarter of last year. The drivers were issues in the company's gaming business, primarily the cryptocurrency bust resulting in a glut of the graphics cards popular among digital currency "miners," along with softening demand for its data center products stemming from concerns about a slowing global economy.
Image source: Getty Images.
NVIDIA's key numbers
Here are the year-ago period's results and Wall Street's estimates to use as benchmarks.
| Metric | Fiscal Q3 2019 Result | Fiscal Q3 2020 Wall Street Estimate | Projected Growth (YOY) |
|---|---|---|---|
| Revenue | $3.18 billion | $2.92 billion | (8.2%) |
| Adjusted earnings per share (EPS) | $1.84 | $1.58 | (14.1%) |
Data sources: NVIDIA and Yahoo! Finance. YOY = year over year.
For context, last quarter, NVIDIA's revenue dropped 17% year over year to $2.58 billion and adjusted EPS dropped 36% to $1.24. So, analysts are expecting the year-over-year declines on both the top and bottom lines to considerably decelerate and for the company to post very respectable sequential revenue and earnings growth.
Last quarter, the Street was looking for adjusted EPS of $1.14, so NVIDIA easily surpassed that expectation. Given the strength in NVIDIA stock, investors seem to be anticipating another solid earnings beat.
Platform performance
For context, here's how the platforms performed last quarter:
| Platform | Fiscal Q2 2020 Revenue | Change (YOY) | Change (QOQ) |
|---|---|---|---|
|
Gaming |
$1.31 billion | (27%) | 24% |
| Data center | $655 million | (14%) | 3% |
| Professional visualization | $291 million | 4% | 9% |
| Automotive | $209 million | 30% | 26% |
| OEM and IP* | $111 million | (4%) | 12% |
| Total | $2.58 billion | (17%) | 16% |
DATA SOURCE: NVIDIA. *OEM AND IP = ORIGINAL EQUIPMENT MANUFACTURER AND INTELLECTUAL PROPERTY. QOQ = QUARTER OVER QUARTER.
Gaming
Investors can likely count on gaming revenue to continue to decline on a year-over-year basis. But it's also probable the segment will continue to make good progress sequentially. (Keep in mind there is some seasonality to the gaming business, so don't read too much into quarter-to-quarter changes.)
Last quarter, gaming's revenue fell 27% year over year, an improvement from the first quarter's 39% drop. So, investors will be looking for the Q3 year-over-year decline to be considerably south of 27%.
In the second quarter, the company launched its GeForce RTX Super GPU lineup for desktop gamers and its RTX studio laptops for creators, and ramped up production of the two new models of the Nintendo Switch gaming console. These new products should continue to boost revenue.
Data center
The company's artificial intelligence (AI)-driven data center segment has very little to no seasonality, so you can get a good handle on whether its performance is improving by comparing Q3 revenue with Q2 revenue, which was $655 million.
Last quarter, there was just a 3% sequential improvement. We really can't tell from a percentage that small if data center's revenue has truly bottomed. My guess is that it has and at least a modest sustainable rebound has begun, and most investors seem on board with this opinion, given the stock's recent price action.
Q4 guidance
Investors should home in on NVIDIA's guidance. The company's Q4 outlook will probably have a bigger impact on its stock price than its Q3 results, relative to expectations.
Wall Street is modeling for Q4 adjusted EPS of $1.07 on revenue of $3.06 billion, representing growth of 113% and 39%, respectively, year over year. Yup, strong year-over-year growth is expected to resume next quarter. That's due to two reasons: a projected continued improvement in the company's organic business and the contribution from the Mellanox acquisition, which is expected to close by the end of this calendar year.
On that note, we can probably expect management to give an update on the earnings call regarding the status of the deal to buy the data center connectivity specialist.
