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NVIDIA Is All About Solid Laptop Growth Right Now

By Anders Bylund - Nov 16, 2019 at 6:11AM

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The graphics processor specialist smashed Wall Street's third-quarter targets thanks to strong end-market interest in high-performance laptops for both gaming and professional use cases.

Graphics processing unit (GPU) designer NVIDIA ( NVDA 1.34% ) reported earnings results on Thursday evening, covering the third quarter of fiscal year 2020. The company crushed analyst estimates in Q3, but management's fourth-quarter guidance failed to impress Wall Street.

Here's a closer look at NVIDIA's latest financial report.

NVIDIA's third-quarter results by the numbers

Metric

Q3 2019

Q3 2018

Change (YOY)

Revenue

$3.01 billion

$3.18 billion

(5.3%)

GAAP net income

$899 million

$1.23 billion

(27%)

Adjusted earnings per share (diluted)

$1.78

$1.84

(3.3%)

Data source: NVIDIA. GAAP = generally accepted accounting principles. YOY = year over year.

What's new with NVIDIA?

  • The results above compare favorably to the Street's consensus estimates, which had been calling for adjusted earnings near $1.57 per share on sales in the neighborhood of $2.91 billion.
  • The retreat from record revenue in 2018 continued. Revenues fell by single-digit percentages in four of NVIDIA's five reported end markets as compared to the year-ago period. Professional visualization balanced out those negative trends with 6% higher sales, thanks to solid end-user interest in NVIDIA's products for mobile workstations.
  • GAAP gross margin widened from 60.4% in the year-ago quarter to 63.6% for this report. The metric was boosted by higher average selling prices and lower component costs, and NVIDIA also managed to sell some product inventories that had been written off as unsalable in earlier reporting periods.
  • The combination of RTX ray-tracing and the Max-Q notebook design standards helped NVIDIA post growth in mobile workstations and also in the category of gaming notebooks. Management said that Max-Q gaming laptops might be the next big gaming platform, starting with a groundswell of third-quarter system builds in preparation for the upcoming holiday season.
  • Looking ahead, NVIDIA expects fourth-quarter sales to rise by approximately 33% year over year, landing near $2.95 billion. Adjusted earnings should stop near $1.65 per share, roughly double the earnings seen in the same period of fiscal year 2019. These solid increases still didn't measure up to the current Wall Street tenor, however. Your average financial analyst had been looking for earnings of roughly $1.70 per share on revenue near $3.06 billion.
A rendering of a green lawn, mowed to form a large Nvidia logo.

Image source: Nvidia.

Color commentary from NVIDIA's executive suite

On the earnings call, CEO Jensen Huang dug deeper into the growing notebook opportunity.

"These gaming RTX notebooks, or GeForce notebooks, is really a brand-new category. This category never existed before because we couldn't get the technology in there," Huang said. "Over 100 laptops now are available for PC gaming. And my sense is that this is likely going to be the largest new gaming platform that emerges. And we're just in the beginning innings of that."

The 100-model lineup of RTX and Max-Q laptops will expand to more than 130 systems in time for the holiday shopping season. Huang appears to see a much larger market than that in the future, supplanting gaming consoles and mobile games to some degree. All of these gaming systems are in addition to more than 40 mobile workstation designs, which are driving the professional visualization segment based on a different application of the same technical foundation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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