Nvidia (NVDA) Q1 Earnings: What to Expect
The decline in semiconductor stocks continue to worsen, leaving many investors wondering when the drop will end. Although Nvidia (NVDA) has executed flawlessness over the past two years, it hasn’t been shielded from macro economic and supply chain headwinds that has lead to the recent punishment in tech stocks. But is now a buying opportunity?
The semiconductor specialist will report first quarter fiscal 2022 earnings results after Wednesday’s closing bell. While twelve straight quarters of earnings beats have gotten investors less concerned about Nvidia’s valuation, the market is nonetheless repricing tech, which has driven NVDA stock to a six-month low and is now down some 50% year to date. The bulk of that decline was also the result of the the canceled buyout deal Nvidia had on the table for Arm Limited after the company cited "significant regulatory challenges.”
The deal would have given Nvidia control over designs that rival chip companies such as Intel (INTC) and AMD (AMD) and Qualcomm (QCOM) rely on to develop their own competing chips. Investors have now become concerned that Nvidia’s growth capabilities in key markets for graphics cards, particularly those that are used in video games and datacenter is under pressure. The recent selloff in cryptocurrencies has also scaled back demand for Nvidia’s GPUs which are used in crypto mining.
For that matter, the entire chip industry has also suffered a decline in average selling prices, which analysts believe will impact the company’s gaming revenue and datacenter revenue. Having posted sequential revenue growth in each of its last 12 quarters, the datacenter business is Nvidia’s second-largest growth driver. To reverse the stock's decline the company on Wednesday will need to talk positively about its growth prospects for the next quarter and beyond.
For the three months that ended April, Wall Street expects the Santa Clara, Calif.-based company to earn $1.29 per share on revenue of $8.09 billion. This compares to the year-ago quarter when earnings came to 92 cents per share on revenue of $5.66 billion. For the full year, ending in January, earnings of $5.65 per share would rise 27% year over year, while full-year revenue of $34.8 billion would rise 30% year over year.
For some context as to the recent bearishness in the stock, the full-year projected earnings growth of 27%, while that is solid in its own right, it comparers to year-ago earnings growth of 72%. Likewise, the projected full-year revenue growth of 30% is down from 60% growth in fiscal 2021. In other words, Nvidia is a victim of its own success and facing tough year-over-year comparisons. And that's the same story across the entire tech sector which has enjoyed a massive pull-forward from the pandemic.
The market wants to see how Nvidia management plans to pivot. The company's dominance of its current market remains the key to its growth evidenced by the fourth quarter results during which the company earned $1.32 per share on $7.64 billion in revenue, beating on both metrics driven by record revenue from gaming, datacenter and professional visualization. Gaming revenue rose 37% to $3.42 billion, while datacenter revenue surged 71% to $3.26 billion. The latter accounted for 43% of total revenue.
The company guided for Q1 revenue to be $8.1 billion, plus or minus 2%. That guidance sent the stock falling more than 10%. The market assumes that datacenter numbers for the just-ended quarter will drastically slow and the forward guidance might not be good enough to excite investors. As such, the guidance on Wednesday will be the key factor in the stock’s near-term direction.