It has been about a month since the last earnings report for Nvidia (NVDA). Shares have added about 6.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Nvidia due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
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NVIDIA Q3 Earnings Top Estimates
NVIDIA reported third-quarter fiscal 2020 non-GAAP earnings of $1.78 per share that beat the Zacks Consensus Estimate by 13.4% but declined 3.3% year over year. However, the bottom line surged 43.5% sequentially.
Revenues of $3.01 billion beat the consensus mark by 3.9% but declined 5.2% year over year. However, the top line rose 16.9% sequentially.
Top-Line Details
Revenues at the GPU Business fell 7.1% year over year to $2.57 billion. However, on a sequential basis, segment revenues grew 21.9%.
Tegra Processor Business revenues were $449 million, up 10.3% on a year-over-year basis but down 5.5% sequentially.
On the basis of market platform, Gaming revenues were down 6% on a year-over-year basis to $1.66 billion due to decreased shipments of GeForce desktop GPUs. However, the same was up 26.4% sequentially, backed by strong growth in GeForce desktop and notebook GPUs.
Meanwhile, revenues from Data Center deteriorated 8.3% year over year to $726 million. The decline reflects lower enterprise revenues due to an unfavorable product mix and decreased DGX sales. This was partially offset by an increase in Hyperscale demand, which sequentially drove revenues by 10.8%.
Automotive revenues in the reported quarter totaled $162 million, reflecting a 5.8% year-over-year and a 22.5% sequential decline. The year-over-year decline reflects lower revenues from legacy infotainment modules and autonomous vehicle solutions, partially negated by growth in AI cockpit solutions.
Moving to Professional Visualization, revenues climbed 6.2% year over year and 11.3% sequentially to $324 million. Strength across mobile workstation products was the primary driver.
OEM and IP revenues dropped 3.4% year over year to $143 million. However, the same grew 28.8% sequentially, owing to increased shipments of entry-level GPUs for notebook PCs.
Quarter Highlights
During the quarter, NVIDIA announced that Microsoft’s Minecraft game will feature ray tracing technology. The company also collaborated with Microsoft to provide an optimized hybrid-cloud platform, combining Microsoft Azure software with NVIDIA EGX powered by NVIDIA T4 GPUs to address edge-computing demand.
In the Gaming segment, the company announced SUPER versions of GeForce GTX GPUs. NVIDIA also launched the RTX Broadcast Engine, which uses the AI capabilities of GeForce RTX GPUs to enable virtual greenscreens, filters and AR effects in live streaming.
NVIDIA announced two new models of the SHIELD TV streaming media player. Additionally, the company extended the reach of the GeForce NOW game streaming service in the reported quarter. The service is now offered by Taiwan Mobile and Russia’s Rostelcom with GFN.ru, apart from Korea’s LG U+ and Japan’s SoftBank.
Moreover, the company launched the NVIDIA EGX Intelligent Edge Computing Platform. Walmart, BMW, NTT East, Procter & Gamble and Samsung Electronics are among the early adopters of this platform.
NVIDIA also entered the 5G telecom market in the reported quarter. In collaboration with Ericsson, the company will help telcos build high-performing, efficient, virtualized 5G radio access networks using GPUs.
Further, the company announced a collaboration with Red Hat to deliver software-defined 5G RAN using Red Hat OpenShift and GPU accelerated servers.
Moreover, NVIDIA entered a partnership with VMware to accelerate VMware Cloud on AWS, using NVIDIA T4 GPUs. The partnership also introduced the new NVIDIAvComputeServer software for enterprises to run AI workloads on GPU servers in virtualized environments.
Additionally, the company introduced Jetson Xavier NX, the world’s smallest, most powerful AI supercomputer for robotic and embedded computing devices at the edge.
Operating Details
NVIDIA’s non-GAAP gross margin expanded 310 basis points (bps) from the year-ago quarter to 64.1%. Improved margins on GeForce GPUs for gaming and lower component costs were the primary drivers.
The abovementioned factors also helped the gross margin expand 390 bps sequentially. Additionally, GeForce GPUs’ higher average selling price drove the gross margin.
Non-GAAP operating expenses increased 2.7% year over year to $774 million due to increase in headcount, higher employee compensation and infrastructure costs.
Non-GAAP operating income declined 4.5% year over year to $1.16 billion. Operating margin expanded 30 bps to 38.4% in the reported quarter.
Balance Sheet and Cash Flow
As of Oct 27, 2019, NVIDIA’s cash, cash equivalents and marketable securities were $9.77 billion, up from $8.47 billion as of Jul 27, 2019.
Total debt, as of Oct 27, was $1.99 billion compared with $24.67 billion as of Jul 27.
Cash flow from operating activities was $1.64 billion in the fiscal third quarter, up from $936 million in the previous quarter.
Free cash flow was $1.54 billion, up from $823 million in the previous quarter.
The company did not make any stock repurchase in the reported quarter due to its pending buyout of Mellanox. The company expects to close the acquisition in early calendar-year 2020.
Guidance
For the fourth quarter of fiscal 2020, NVIDIA anticipates revenues of $2.95 billion (+/-2%).
Management expects strong sequential growth in Data Center to be offset by a seasonal decline in GeForce notebook GPUs and SoC modules for gaming platforms.
Non-GAAP gross margin is projected to be 64.5% (+/-50 bps). Non-GAAP operating expenses are expected to be $805 million.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months.
VGM Scores
Currently, Nvidia has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Nvidia has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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