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Why NVIDIA Stock Soared 22% in May

By Beth McKenna – Jun 6, 2020 at 3:00PM

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Shares of the AI leader have returned 52% in 2020 while the market is flat.

What happened

NVIDIA (NVDA 5.24%) stock jumped 21.5% in May, according to data from S&P Global Market Intelligence. For context, the S&P 500 returned 4.8% last month.

Shares of the artificial intelligence (AI) leader have started June on a slow note, however, gaining just 0.4% this week. Meanwhile, the broader market was up nearly 5% for the week.

Profile of a person's head overlaid on a colorful digital background -- concept for AI.

Image source: Getty Images.

So what

We can attribute NVIDIA stock's strong performance last month largely to investor optimism that the company's results for fiscal first quarter 2021 would be strong.

NVIDIA didn't disappoint. On May 21, it reported that its first quarter revenue rose 39% year over year to $3.08 billion. Growth was driven by its AI-driven data center platform, whose revenue rocketed 80%. Adjusted for one-time items, earnings per share (EPS) soared 105% year over year.

Results on both the top and bottom lines easily beat Wall Street's consensus estimates. Analysts were looking for adjusted EPS of $1.68 on revenue of $2.98 billion. 

Now what

NVIDIA's outlook was robust. For the second quarter, management guided for revenue of $3.65 billion, representing growth of 41.5% year over year. It also expects adjusted EPS of $1.94, according to my calculations using the various inputs that management provides. This represents growth of 56.5% year over year. 

Guidance includes the contribution from Mellanox Technologies. NVIDIA closed on its acquisition of the high-performance networking specialist on the first day of its fiscal second quarter.

Mellanox is expected to contribute a "low-teens percentage" of NVIDIA's total second quarter revenue and be immediately accretive to its earnings. 

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

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