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NVIDIA's Earnings Report Was Stellar (Again) -- but Not Good Enough for All Investors

By Beth McKenna - Feb 25, 2021 at 9:37AM

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The AI-driven data center and gaming businesses set new quarterly sales records.

NVIDIA (NVDA -6.82%) reported strong fiscal fourth-quarter 2021 results after the market close on Wednesday, Feb. 24. As with last quarter, the graphics processing unit (GPU) specialist's growth was driven by record revenue in its gaming and artificial intelligence (AI)-driven data center businesses. 

Results on both the top and bottom lines beat Wall Street's consensus estimates, and fiscal first-quarter 2022 guidance for both revenue and adjusted earnings per share (EPS) also came in higher than analysts had been expecting.

Shares of the tech stock initially rose 3.1% in Wednesday's after-hours trading session, but reversed course soon before the earnings call started and fell throughout the call. Shares closed the session down 2.2%. The slightly negative reaction is probably attributable to a few management statements, including that the gaming business is still supply-constrained, along with no material news shared on the pending Arm acquisition.

That post-earnings release fall is a drop in the bucket, as NVIDIA stock has returned 113% over the one-year period through Wednesday's regular trading session. The S&P 500 has returned just under 24% over this period.

A silhouette of a person's head with digital imagery.

Image source: Getty Images.

NVIDIA's key quarterly numbers 

Metric

Fiscal Q4 2021

Fiscal Q4 2020

Change

Revenue

$5.00 billion

$3.11 billion

61%

GAAP operating income

$1.51 billion $990 million 52%

GAAP net income

$1.46 billion  $950 million 53%

Adjusted net income

$1.96 billion $1.17 billion 67%

GAAP earnings per share (EPS)

$2.31 $1.53 51%

Adjusted EPS

$3.10 $1.89 64%

Data source: NVIDIA. GAAP = generally accepted accounting principles. Fiscal Q4 2021 ended on Jan. 31, 2021.

Wall Street was looking for adjusted EPS of $2.81 on revenue of $4.82 billion. And NVIDIA had guided for adjusted EPS of $2.79 on revenue of $4.8 billion. So its results easily surpassed both its outlook and analysts' expectations.

GAAP gross margin was 63.1%, down from 64.9% in the year-ago quarter. Adjusted gross margin landed at 65.5%, essentially in line with the year-ago period's 65.4%.

For additional context, last quarter, NVIDIA's year-over-year revenue and adjusted EPS growth were 57% and 63%, respectively.

Platform performance

Platform

Fiscal Q4 2021 Revenue

Change YOY

Change QOQ

Gaming

 $2.50 billion

67% 10%

Data center

 $1.90 billion 

97%

(45% organic, excludes Mellanox contribution)

--

Professional visualization

 $307 million

(7%) 

30%

Automotive

 $145 million

(11%) 16%

OEM and IP

 $153 million

1% (21%)

Total

 $5.00 billion

61% 6%

Data source: NVIDIA. OEM and IP = original equipment manufacturer and intellectual property; not a target market platform. YOY = year over year. QOQ = quarter over quarter.

In the CFO commentary, Colette Kress outlined how the COVID-19 pandemic affected demand for products within each of the four target platforms: 

Our gaming and data center market platforms have benefited from stronger demand as people continue to work, learn, and play from home. In professional visualization, mobile workstations continue to benefit from work-from-home trends, and desktop workstation demand has started to recover, although not back to pre-COVID levels. In automotive, COVID is no longer having a significant impact on demand. 

Kress added that NVIDIA continues to have some supply chain issues, particularly in gaming, because "stronger demand globally has limited the availability of capacity and components."

Gaming had a blowout holiday quarter, driven by the ramp of the company's GeForce RTX 30 series based on its Ampere architecture. CEO Jensen Huang said in the earnings release that demand for these GPUs is "incredible."

The data center platform's year-over-year revenue growth was driven by the company's Mellanox acquisition and the ramp of the NVIDIA Ampere GPU architecture, according to Kress. She added that revenue was flat with the prior quarter because "double-digit growth in compute products was offset by the anticipated decline in Mellanox revenue." On the earnings call, Kress said the expected sequential decline was due to a one-time order from a Chinese company in the fiscal third quarter. Management continues to project solid growth from Mellanox.

Pending Arm acquisition

On the earnings call, Kress said that NVIDIA's pending $40 billion deal to acquire leading central processing unit (CPU) chip designer Arm "is moving forward as expected. We are [...] confident that regulators will see the benefits to the entire tech ecosystem."

Some big tech players have expressed concerns that the combination of the two companies could hinder competition since Arm supplies technology to many of NVIDIA's competitors. On the call, Kress reaffirmed that NVIDIA intends "to maintain Arm's open licensing model, a commitment guaranteed both by long-term legally binding contracts as well as our own interest in ensuring this investment is a profitable one for us."

In September when the acquisition was announced, NVIDIA said it expected it to close in the calendar first quarter of 2022. It also projected that the transaction would be immediately accretive to the company's adjusted gross margin and adjusted EPS.

Fiscal Q1 2022 guidance exceeded expectations

For fiscal Q1 2022, management expects revenue of $5.3 billion, representing growth of 72% year over year. It also guided (albeit indirectly, by providing a bunch of inputs) for adjusted EPS of $3.21, representing growth of 78%.

Going into the release, Wall Street had been modeling for fiscal Q1 adjusted EPS of $2.55 on revenue of $4.51 billion, so NVIDIA's outlook sped by both estimates.

Another terrific quarter 

Reiterating what I wrote last quarter, as the situation was quite similar and my opinion is the same:

NVIDIA had a fantastic quarter, and its future continues to look bright. Long-term investors should pay no heed to the market's slightly negative initial reaction during Wednesday's after-hours trading session. This action was probably largely driven by short-term momentum traders.

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