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Nvidia Stock Jumps on Earnings Beat and Guidance That Sped by Expectations

By Beth McKenna – Updated Nov 18, 2021 at 6:36PM

Key Points

  • Fiscal Q3 year-over-year revenue and adjusted EPS soared 50% and 60%, respectively.
  • Guidance raced by Wall Street’s expectations on both the top and bottom lines.
  • Nvidia's growth engines were on full display in this report.

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Record sales in the gaming and data center businesses powered revenue 50% higher year over year.

Nvidia (NVDA 3.22%) reported strong fiscal third-quarter 2022 results after the market close on Wednesday, Nov. 17. The graphics processing unit (GPU) specialist's growth was driven by record revenue in its gaming and data center businesses, its two largest platforms. Its professional visualization business also turned in record sales.

Shares of the tech stock gained 5.2% in Wednesday's after-hours trading session, which bodes well for robust market performance on Thursday. Investors' enthusiasm is attributable to both revenue and earnings easily beating Wall Street's consensus estimates, and fiscal fourth-quarter guidance for both the top and bottom lines also coming in higher than analysts had been projecting.

In 2021, Nvidia stock has returned 124% through Wednesday's regular trading session. The S&P 500 market index has returned 26.4% over this period.

Digital rendering of a robotic head fading into the white background.

Image source: Getty Images.

Nvidia's key numbers

Metric

Fiscal Q3 2022

Fiscal Q3 2021

Change

Revenue

$7.10 billion

$4.73 billion

50%

GAAP operating income

$2.67 billion

$1.40 billion

91%

GAAP net income

$2.46 billion

$1.34 billion

84%

Adjusted net income

$2.97 billion

$1.83 billion

62%

GAAP earnings per share (EPS)

$0.97

$0.53*

83%

Adjusted EPS

$1.17

$0.73*

60%

Data source: Nvidia. GAAP = generally accepted accounting principles. Fiscal Q3 2022 ended on Oct. 31, 2021. *Adjusted to reflect 4-for-1 stock split in July 2021.

Wall Street was looking for adjusted EPS of $1.11 on revenue of $6.82 billion, as outlined in my earnings preview. So Nvidia easily surpassed both expectations, as well as its own guidance, which was for adjusted EPS of $1.10 on revenue of $6.8 billion.

GAAP gross margin was 65.2%, up from 62.6% in the year-ago quarter and 64.8% last quarter. Adjusted gross margin landed at 67%, up from the year-ago period's 65.5% and last quarter's 66.7%.

For additional context, in the fiscal second quarter, Nvidia's year-over-year revenue, GAAP EPS, and adjusted EPS growth were 68%, 276%, and 89%, respectively.

Platform performance

The gaming, data center, and professional visualization platforms all posted record quarterly sales.

Platform

Fiscal Q3 2022 Revenue

Change (YOY)

Change (QOQ)

Gaming

$3.22 billion

42%

5%

Data center

$2.94 billion

55%

24%

Professional visualization

$577 million

144%

11%

Automotive

$135 million

8%

(11%)

OEM and Other

$234 million

21%

(43%)

Total

$7.10 billion

50%

9%

Data source: Nvidia. OEM and other = original equipment manufacturing and intellectual property, not a target market platform. YOY = year over year. QOQ = quarter over quarter.

Nvidia's gaming and data center platforms together accounted for about 87% of its total revenue, so the company's overall results are heavily driven by the performance of these two businesses.

In her CFO commentary, Colette Kress said the gaming platform's growth was driven by continued strong demand for the company's graphics cards based on its Ampere GPU architecture. She attributed the data center business's powerful performance to continued robust adoption of the Ampere products to "hyperscale customers for cloud computing and workloads such as natural language processing and deep recommender models, as well as to vertical industries." CEO Jensen Huang, in the earnings release, described demand for the company's products for artificial intelligence (AI) applications as "surging."

Professional visualization also had another fantastic record-setting quarter. Its growth was driven by strong sales of Ampere GPUs for both desktop and notebook workstations "as enterprises deploy systems to support hybrid work environments," said Kress.

Investors shouldn't pay much attention to results in OEM and other because this category's sales can be expected to fluctuate considerably due to the extreme volatility in the cryptocurrency market. In the just-reported quarter, sales of Nvidia's cryptocurrency mining processor (CMP) -- which launched earlier this year -- were $105 million, down from $266 million last quarter.

Metaverse

Nvidia has the potential to benefit considerably from the emerging metaverse, which can be thought of as a "highly immersive virtual world where people gather to socialize, play, and work," to use the words of Merriam-Webster. The company's Omniverse is an infrastructure platform for the build-out of the metaverse. Huang commented on this topic in the earnings release:

Omniverse was a major theme at GTC [the company's annual GPU Technology Conference, which was held online last week]. We showed what is possible when we can jump into virtual worlds. Omniverse will be used from collaborative design, customer service avatars and video conferencing, to digital twins of factories, processing plants, even entire cities. Omniverse brings together Nvidia's expertise in AI, simulation, graphics, and computing infrastructure.

Fiscal Q4 guidance speeds by expectations

For the fiscal fourth quarter, management expects revenue of $7.4 billion, representing growth of 48% year over year. It also guided (albeit indirectly, by providing a bunch of inputs) for adjusted EPS of $1.22, representing growth of 58%.

Going into the release, Wall Street had been modeling for revenue and adjusted EPS to grow 36% and 40%, respectively.

A top growth stock

Nvidia had another terrific quarter. I'll reiterate what I wrote after last quarter's results were released: "Its stock is one of the best growth stocks in the market today, in my view. The company is a major player in so many high-growth areas, including artificial intelligence (AI), cloud computing, gaming, self-driving vehicles, and virtual reality (VR)."

And I'll add that Nvidia seems poised to be a dominant player in the metaverse, which has the potential to be a major long-term growth driver.

Nvidia stock remains a top buy for growth-oriented investors focused on the long term.

Stay tuned. I'll be covering the highlights of the company's earnings call soon.

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

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