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Why NVIDIA Stock Can Zoom Higher This Earnings Season

By Harsh Chauhan - Feb 19, 2021 at 7:45AM

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The graphics card specialist is going into its fiscal 2021 Q4 earnings report with impressive catalysts.

NVIDIA (NVDA 5.38%) has gotten off to a terrific start in the calendar year 2021, with shares of the graphics card specialist jumping more than 14% in the first few weeks of the new year.

The company's impressive performance on the stock market could gain additional momentum next week when it releases results for the fiscal 2021 fourth quarter, which ended on Jan. 31, 2021. Let's see why.

NVDA Chart

NVDA data by YCharts

NVIDIA is set for blowout earnings and a solid guidance

Wall Street analysts expect NVIDIA to deliver $2.80 per share in earnings on revenue of $4.82 billion. The numbers are almost in line with the midpoint of the company's revenue guidance (issued in November) of $4.80 billion and an earnings estimate of $2.79 per share.

Investors should remember that analysts were originally expecting NVIDIA to earn $2.54 per share in adjusted earnings on $4.42 billion in revenue. The chipmaker set the bar much higher when it released its fiscal third-quarter report in mid-November.

The midpoint of NVIDIA's guidance range indicates that its fiscal fourth-quarter revenue would jump 54% year over year, while earnings will increase 48%. But don't be surprised to see NVIDIA beat its own expectations, thanks to the overwhelming demand for its graphics cards. The RTX 30 series graphics cards that NVIDIA released a few months ago are difficult to find thanks to their impressive pricing and major improvements over the previous generation cards.

NVIDIA CFO Colette Kress recently pointed out that the demand for its gaming GPUs (graphics processing units) is "off the charts." Supply levels are likely to remain lean through the company's fiscal first quarter that ends in April, according to Kress. A shortage of components is also hurting supply, but NVIDIA is reportedly in a better position on that front as compared to rival Advanced Micro Devices (AMD).

A rocket launching into space.

Image source: Getty Images

Additionally, NVIDIA is trying to alleviate the graphics card shortage by ramping up the production of older-generation chips. Quoting an NVIDIA executive, PCWorld reports that the company is witnessing "extremely high" demand, and that has led it to increase the production of two popular cards -- the RTX 2060 and the GTX 1050 Ti.

Consumers won't have to break the bank to buy these cards, as the RTX 2060 carries a $350 price tag, while the 1050 Ti is much more affordable at $140. These cards are equipped with GDDR5 memory, which allows NVIDIA to bypass the shortage of GDDR6 memory used in the RTX 30 cards.

As such, NVIDIA may have taken away more market share from AMD last quarter. The ramp-up of the older but popular GPUs could help NVIDIA pile more pressure on its arch-rival this quarter, and that could lead to better-than-expected guidance.

The data center catalyst

The data center business, meanwhile, is slated to deliver another blockbuster performance, thanks to the solid demand from cloud service providers.

NVIDIA has been ramping up the production of its data center servers and recently began shipping its A100 GPUs to server partners. The A100 has turned out to be a hugely popular data center GPU, with a host of major cloud companies lining up to buy it because of the massive performance increase it delivers over its predecessor.

Not surprisingly, the demand for the A100 GPUs was reportedly exceeding supply last year. A ramp-up in production bodes well for NVIDIA's data center revenue, which accounted for 40% of its revenue in the fiscal third quarter and recorded a massive year-over-year jump of 162%.

In all, NVIDIA is sitting on favorable end-market conditions going into its quarterly report, set for release on Wednesday, Feb. 24. The huge demand for graphics cards used in video gaming and data centers, coupled with NVIDIA's dominating market share, should help it deliver a beat-and-raise quarter and add fuel to this hot growth stock's rally.

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NVIDIA Corporation Stock Quote
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$188.11 (5.38%) $9.60
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