NVIDIA Beats Q2 EPS Estimates, Issues Weak Q3 View

NVIDIA Beats Q2 EPS Estimates, Issues Weak Q3 View
August 19, 2019


The computer hardware manufacturer NVIDIA (NASDAQ: NVDA) posted higher earnings in fiscal 2020 second quarter, compared with the similar period last year. However, on a y-o-y basis, the company posted a decline in revenue, primarily due to the poor performance of the gaming segment. Both earnings and revenue beat analysts’ estimates. The stock closed at $159.56, up $10.79 or 7.25% from the previous close.

The Santa Clara, California-based company, posted second-quarter revenues of $2.58 billion, down 17% from $3.123 billion from the corresponding quarter last year.

For the July quarter, net income declined to $552 million, or $0.90 per share, from $1.101 billion, or $1.76 per share, in the year-ago period. On a non-GAAP basis, net income was $762 million, or $1.24 per share in Q2 2018, compared with $1.210 billion, or $1.94 per share, in Q2 2019. The Wall Street analysts anticipated earnings of $1.15 per share on revenues of $2.54 billion.

Commenting on the quarterly results, Jensen Huang, founder and CEO of NVIDIA said, “We achieved sequential growth across our platforms. Real-time ray tracing is the most important graphics innovation in a decade. Adoption has reached a tipping point, with NVIDIA RTX leading the way. NVIDIA accelerated computing momentum continues to build as the industry races to enable the next frontier in artificial intelligence, conversational AI, as well as autonomous systems like self-driving vehicles and delivery robots.”

Segment-wise, gaming revenue dropped 27% y-o-y to $1.31 billion, beating the consensus estimate of $1.30 billion. A decrease in the shipment of graphics cards for desktop PCs and system-on-chip components for gaming systems was responsible for reduced gaming revenue.

Data center segment revenue also decreased 14% y-o-y to $655 million, missing FactSet consensus of $668.50 million. The company reported a drop in revenue generated from “hyperscale” clients such as cloud infrastructure providers. However, the company claimed that engineering centered AI is growing. Nvidia’s chief financial officer, Colette Kress, said: “While sales for internal hyperscale use were muted, the engineering focus on AI is growing.”

Moving forward, the management anticipates Q3 revenues of $2.90 billion, plus-minus 2% ($2.84 billion or $2.96 billion). The company’s forecast represents 9% y-o-y decline from Q3 2018 and below Refinitiv analysts’ estimate of $2.97 billion.

Adjusted gross margin is anticipated to be 62.5%, plus-minus 50 basis points. Adjusted operating expense is predicted to be approximately $765 million.

The company also declared a quarterly cash dividend of $0.16 per share, payable on September 20th, 2019. During the quarter, the company posted a net margin of 30.68% and return on equity of 31.27%.

Therefore, better-than-anticipated Q2 results and weak Q3 outlook is expected to keep the stock range-bound in the short-term.

Technically, the stock is trading below its 50-day moving average. However, the MACD indicator is ascending towards the positive region. As a result, we can expect the stock to remain range-bound between 115 and 160 in the short-term.

nvi - technical analysis - 19th Aug 2019

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Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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