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Why NVIDIA Stock Jumped 12% in July

By Beth McKenna – Aug 3, 2020 at 11:37PM

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Shares of the artificial intelligence leader are having a super 2020.

What happened

NVIDIA (NVDA -1.51%) stock popped 11.8% in July, according to data from S&P Global Market Intelligence. That's a bit better than twice the market's performance, as the S&P 500 returned 5.6% last month.

Shares of the artificial intelligence (AI) leader have been on fire this year. They've returned 87.5% through Monday, Aug. 3, while the S&P 500 has returned 3.1% over the period. 

Silhouette of a person's head in profile overlaid on a colorful background of a circuit board and computer code.

Image source: Getty Images.

So what

NVIDIA wasn't the subject of any market-moving news in July. We can attribute its stock's strong July performance simply to the powerful momentum it has had all year.

This momentum stems largely from robust financial results that have beaten Wall Street's estimates, as well as management's upbeat outlooks. Investors are also enthused about the acquisition of Mellanox Technologies, which closed on the first day of NVIDIA's fiscal second quarter. Mellanox makes high-performance networking products and strengthens NVIDIA's AI-driven data center platform. 

As to the "robust financial results," in the fiscal first quarter, NVIDIA's revenue surged 39% year over year to $3.08 billion. Growth was driven by its data center business, which posted sales growth of 80% year over year. Earnings per share (EPS) shot up 130% year over year to $1.47, while adjusted EPS soared 105% to $1.80. Wall Street was expecting adjusted EPS of $1.68 on revenue of $2.98 billion, so NVIDIA beat on both counts. 

NVDA Total Return Price Chart

Data by YCharts.

Now what

Investors don't have long to wait for material news. The company recently announced that it will release its fiscal second-quarter results on Wednesday, Aug. 19, after the market close.

For the quarter, management guided for revenue of $3.65 billion, representing growth of 41.5% year over year. According to my calculations from the inputs management provided, it also expects adjusted EPS of $1.94. This represents growth of 56.5% over the year-ago period. 

This outlook includes the contribution from Mellanox, which is expected to contribute a "low-teens percentage" of NVIDIA's total quarterly revenue and be accretive to 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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