NVIDIA (NVDA, Financial) will be reporting its second-quarter earnings after market close on Aug. 11. Let’s review its performance through the first quarter and see what the company, and analysts, expect to report this quarter.
Revenue and earnings forecast
The semiconductor company is expected to post earnings per share of 37 cents compared with earnings of 5 cents per share the company reported in the same period a year earlier. Earnings in the second quarter of last year dropped due to an $89 million restructuring charge related to the wind down of Icera modem operations. Diluted earnings per share grew 38% year over year during the first quarter but should ideally grow much more than that during the second quarter.
Second quarter consensus revenue forecast is $1.35 billion – in line with the midpoint of the company’s estimated revenue outlook range, plus or minus 2% from $1.35 billion. Revenues during the first quarter grew 13% year over year so the market is not expecting to be surprised here.
The last eight quarters
NVIDIA’s growth during the last eight quarters has been extremely good with the company accelerating sales growth into double digits for the last two quarters and expecting to carry on the momentum well into the second quarter. When earnings rise, then the stock has nowhere to go but up. In the case of NVIDIA, stock price has taken the lead over earnings growth, zooming up for a 180% return in the last 365 days. The stock is up by 70% since the start of the year and, minus any downward revision to the outlook, it should continue its trajectory.
Will the second quarter hold some unexpected results?
On the revenue front, we don’t expect any pleasant shocks. However, two of NVIDIA’s segments may continue to show impressive growth and signs that they are ready to support the company as much as gaming is doing right now.
Its datacenter business is one of these that will continue to show strong growth in the second quarter. As a result of all the top cloud providers ramping up their datacenter openings this year, the tide has risen and a wave is going around the world – with NVIDIA riding the crest. If you look at the table below, you’ll see that it’s already grown 63% from the same period last year, and the six-month table that we’ll see during the second quarter is going to show similar growth.
The other business that’s really showing promise is the automotive segment. Here, too, it is riding the wave of connected cars and smart vehicles that are basically powered by their processing units. As auto majors step up their activities in the electric vehicle and hybrid space, they’re simultaneously making sure that all of their models get the kind of processing power that consumers have come to expect as standard features. As technology and in-vehicle connectivity improve, so will the business of all semiconductor companies operating in the automotive segment.
One significant point is that NVIDIA is not growing these businesses to stem any losses from its core business the way companies like Oracle (ORCL, Financial) or Microsoft (MSFT, Financial) are doing. These are potential winners in NVIDIA’s segment portfolio that will take the company to the next level of profitability. While other tech companies are depending on cloud, video, artificial intelligence (AI) and the Internet of Things (IoT) to achieve that same goal, NVIDIA is doing it literally under the hood.
What does it mean to you?
From an investor’s standpoint, even a few million dollars' worth of gains in these areas can translate into high double-digit growth, and that’s the real reason the company’s stock is strong and moving up. There’s practically little downside to the business, and if it can nurture these newer segments and bring them into the half-billion-dollar club, it will practically triple revenue over the next few years.
The major shift that tech companies are making into new areas like cloud, IoT, AI and driverless vehicle technology is the real support underneath NVIDIA’s business – and it will be the moat that keeps new players at bay for a long time.
As I mentioned, don’t expect revenue surprises this quarter, but do expect some growth surprises within those two segments we’ve identified. That’s where the real future of NVIDIA lies.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
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