Nvidia (NVDA) is set to report second quarter fiscal 2020 earnings results after Thursday’s closing bell. Investors are eager to see whether the company can finally get out of its rut.
After the graphics chip powerhouse saw its stock skyrocket more than 1,200% in the past three years, the stock peaked last September at $292 and then was cut by more than half, falling to $133 in June. Investors looked for the exits as demand for crypto-mining chips vanished, which left Nvidia, as with rival AMD (AMD), suffering from too much inventory. That, combined with weakened demand for datacenter and artificial intelligence (AI) chips took a big chunk out of the company’s revenue growth story.
What’s more, the trade war between the U.S. and China presented one more headwind. But Nvidia stock could be poised for a rebound. There are reasons to suggest there’s too much pessimism surrounding the underlying business, which is already priced into the stock. On Thursday the company’s guidance could be a catalyst to revive not only NVDA stock, but also the entire chip sector. Investors will also hear how the company plans to integrate Mellanox Technologies (MNLX), which it acquired earlier this year.
For the three months that ended July, Wall Street expects the Santa Clara, Calif.-based company to earn $1.14 per share on revenue of $2.55 billion. This compares to the year-ago quarter when earnings came to $1.94 per share on revenue of $3.12 billion. For the full year, ending in December, earnings of $5.29 per share would decline 19.7% year over year, while full-year revenue of $10.96 billion would decline 6.5% year over year.
With both the top and bottom lines projected to decline on a year-over-year basis, the main question is, when will the company get back to growth? In the first quarter, the company reported revenue of $2.22 billion, which was down 31% year over year. Nvidia’s largest segment, gaming, was a big factor in the quarter, falling 38% year over year to $1.06 billion, though that represented an 11% increase sequentially.
As noted, the company has dealt with inventory struggles from the collapse in cryptocurrency demand. First quarter revenue from the datacenter business was also weak, falling 10% to $634 million. Calling the decline a "near-term pause in demand from hyper-scale customers,” CEO Jensen Huang didn’t believe the decline was the beginning of a trend. On the bright side, the company is seeing modest growth in professional visualization and auto, which saw revenue grow to $266 million and $166 million, respectively.
On Thursday analysts will want to see how the company can improve these numbers. With the stock down about 40% over the past year, the market is saying it doesn’t expect too much from Nvidia in this quarter. So, the company’s guidance, whether in datacenter, gaming, and what it says about integrating Mellanox (spending $6.9 billion) will dictate the reaction in the stock. And investors who have waited for a better entry point should consider Nvidia a solid opportunity on any pullback.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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