NVIDIA (NVDA, Financial) will be reporting its third quarter earnings on Nov. 3, and the market is expecting the growth story to continue. Wall Street analysts are expecting the company to report a consensus earnings per share of 56 cents, with $1.69 billion in revenue. NVIDIA generally gives specific guidance numbers for the next quarter. During the second quarter earnings call, the company said it is expecting revenues to be $1.68 billion, with a deviation of plus or minus two percent.
Wall Street is expecting the company to hit near the top end of the range, which would mean a year-over-year growth of nearly 30%. NVIDIA’s quarterly growth for the first two quarters read 13.38% and 23.85%, and the company itself expected things to accelerate during the third quarter. The gaming segment has been holding steady with double-digit growth, while the data center segment and auto segment have been bringing in the additional firepower to push things over the top.
The biggest warning for NVIDIA investors should be the way Netflix (NFLX, Financial) stock is being treated by the market. As hyper-growth stocks, both these companies are trading in excess of 6.5 times sales, and even minor events can send things into a tail spin. When Netflix reported less than stellar subscriber growth numbers for the second quarter, the stock got hammered down by 15%. When the company beat analysts' expectations in the third quarter, it took just a day to push the stock up by 20%.
At these valuation levels, there will be no place to hide if you are a short-term investor; and if you are a long-term investor, it will be sheer madness to get caught up in the volatility. Thankfully nobody, neither the company nor analysts, is expecting any bad news to come from NVIDIA during the third quarter results, and there is a greater probability of the company reporting solid growth numbers and letting the stock continue its upward trajectory. But at some point in the future, NVIDIA may have to let slip a piece of bad news, and that is all it will take for the stock to take a deep dive before continuing its upward climb.
As a company, NVIDIA has proved that it can be in the right place at the right time. The company’s growth in the auto segment, spurred by the industry’s obsession with autonomous technologies, cannot be attributed to luck. The same goes for the growth of artificial intelligence. We have been hearing a lot about these technologies in the last two years, but NVIDIA has been working on them for the past several years, even before we started reading about them in the news.
Intel (INTC, Financial) has only just announced that the company will be doubling down on its efforts in the AI space and concentrating on the data center segment, but NVIDIA was there long before them. As a result, Intel is being forced to play catch-up with its rival.
Apart from being early to the market, the company has also proven it can keep its innovation factory constantly moving, as well as continuing to improve its product line. These are the two things that have brought the company to the top, and it will continue to do so until its rivals finally catch up to it, if ever.
NVIDIA is a great company with some terrific DNA but, unfortunately, the stock price is not attractive at the moment. If you are not careful, it could burn you at some point. Proceed with caution and add small amounts over a long period of time, because NVIDIA is capable of staying at elevated levels for a long time.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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