Nvidia’s Earnings Report Just Got More Interesting

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Nvidia (NASDAQ: NVDA ) stock climbed Tuesday as President Donald Trump's administration delays imposing new tariffs on China through Dec. 15, 2019. NVDA jumped nearly 4% on the news but was unable to hold those gains. By mid-morning Wednesday, the stock struggled to stay above the Aug. 13 low of $151 per share.

Nvidia’s Earnings Report Just Got More Interesting Source: Shutterstock

Nvidia has posted a year-over-year decline in revenues for two consecutive quarters. Analysts expect more of the same for this earnings report. The consensus estimates show a slide in both revenue and EPS when NVIDIA delivers its earnings report on August 15.

Analysts project revenue of $2.55 billion (which would be down 18% year-over-year) and non-GAAP EPS of $1.15 (down 35% YoY). Although the tariff announcement does nothing for those numbers, analysts will be paying close attention to what NVDA has to say about forward earnings. Consensus estimates for the quarter ending in October have revenue increasing to $2.98 billion.

The Trade War Has Hurt NVDA

Nvidia, along with the rest of the semiconductor industry, has been under pressure since the Trump administration announced the first tariffs on China in 2018.

As the rhetoric, if not the reality, has ramped up, companies like Nvidia have been playing the game of lowering expectations. That has helped the company recover a little from the December selloff. NVDA stock is up 17% for the year, which puts it on pace with the S&P 500 Index .

Is the Market Gaming Nvidia Stock?

Nvidia generates almost a quarter (23%) of its revenue from China which provides the company with significant gaming exposure. Despite the company's moves into other sectors like artificial intelligence, over 50% of its total revenue comes from gaming.

Nvidia stock is also under pressure as competitors move in on its gaming space. The GPU giant has been in a gaming war with rival Advanced Micro Devices, Inc. (NASDAQ: AMD ). This is quickly becoming a race to the bottom as both manufacturers are finding it difficult to raise prices even while introducing more advanced GPUs.

The company's gaming revenue has also suffered from a decline in GPU revenue due to lower demand from crypto miners in the quarter. Cryptocurrency demand was a huge driver of gaming revenue. However, coinciding with the crypto bubble burst, NVDA saw gaming revenue fall 39% YoY in the first quarter of their fiscal 2020 year (the quarter that ended in April).

Don't Trade on Yesterday's News

While traders focus on challenges the company faces in its gaming space, the chipmaker is looking toward a very different future . On the same day the market was cheering the tariff delay, Nvidia quietly announced a breakthrough in their artificial intelligence (AI) platform that will seed the company further into the Internet of Things (IoT) space. IoT sales are projected to top $373 billion in 2020 and hardware, like the kind Nvidia provides, will account for 52% of those sales.

In a press release the company announced "Nvidia's AI platform is the first to train BERT (one of the most advanced AI language models) in less than an hour and complete AI inference in just over 2 milliseconds." This breakthrough will allow businesses to engage more naturally with customers using real-time conversational AI. Hundreds of developers worldwide are using Nvidia's AI platform to advance their own language understanding research and create new services.

In April of 2018, the company announced a partnership with ARM in which ARM will use Nvidia's open-source Deep Learning Accelerator (NVDLA) in its Project Trillium platform. While this doesn't sound like a big revenue generator for NVDA in the short-term, the company does stand to benefit.

By seeding its deep-learning technology in millions of devices, NVDA would have a powerful ecosystem that would provide an opening to drive more revenue through the company's data centers, which are already being tapped by the likes of Microsoft (NASDAQ: MSFT ), Amazon (NASDAQ: AMZN ) and Google  (NASDA: GOOG ).

The Bottom Line for NVDA Stock

The chart for NVDA does not set up well for short-term trades, but future growth is coming as the AI revolution ramps up. Nvidia is a major player in this growing space and for investors willing to hold on through some turbulence there looks to be a strong upside.

As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.

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The post Nvidia's Earnings Report Just Got More Interesting appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing
Referenced Symbols: AI , NVDA , MSFT , AMZN , GOOGL

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