If it seems as if Nvidia (NVDA) can do no wrong, that’s because the company has executed flawlessly over the past two years, making its investors wealthy in the process. Rising 33% year to date, while surging 52% over the past year, shares of the graphic chip powerhouse has been one of the best performers not only among the chip stocks, but also in the entire tech sector.
Is now the time to take profits? The graphic chip powerhouse is set to report second quarter fiscal 2021 earnings results after Wednesday’s closing bell. Nine straight quarters of earnings beats have gotten investors less concerned about valuation and more attuned with Nvidia’s growth capabilities in key markets for graphics cards, particularly those used in video games and datacenters. The company's gaming and datacenter markets accounted for almost 90% of total revenue and remain key drivers for its long-term success.
What’s more, the company has taken the lead in chip productions for high-growth areas such as autonomous driving and artificial intelligence. Meanwhile, unlike many of its chip rivals, Nvidia continues to demonstrate not only strong financial performance, it has been more resilient to and less impacted by the semiconductor chip shortage. As a way to mitigate the chip shortage weakness, the company launched its NVIDIA CMP HX — a new product line that caters to cryptocurrency miners and gaming customers.
This product line underscores how quickly the management team is able to adapt and adjust to macro headwinds. Calling the company a best-in-class artificial intelligence play, Rosenblatt Securities analyst Hans Mosesmann recently reiterated a Buy rating on the stock and boosted the price target from $200 to $250. Nonetheless, Nvidia’s guidance on Wednesday will be the key factor in whether the stock continues its march higher or succumbs to profit taking.
For the three months that ended July, Wall Street expects the Santa Clara, Calif.-based company to earn $3.27 per share on revenue of $5.39 billion. This compares to the year-ago quarter when earnings came to $1.80 per share on revenue of $3 billion. For the full year, ending January, earnings of $15.82 per share would rise 58% year over year, while full-year revenue of $24.87 billion would rise 49.1% year over year.
Nvidia wants to maintain its innovative edge against rivals AMD (AMD) and Intel (INTC). While the company's GPU expertise has become synonymous with high performance, Nvidia's proposed acquisition of Arm Limited and the deal's associated synergies is poised to widen the gap with its rivals even more. “Unites NVIDIA’s leadership in artificial intelligence with Arm’s vast computing ecosystem to drive innovation for all customers,” according to the company’s press release.
Investors will want an update on the deal’s progress. While there is strong probability that the deal will go through successfully, there’s still the risk of obtaining the relevant regulatory approvals. To be sure, the company is doing just fine without the deal. In Q1, its revenue jumped 84% year over year, driven by accelerated growth in gaming and datacenter segments which both posted record revenue. First quarter adjusted earnings were also impressive, skyrocketing 104% year over year.
The massive increases in both the top and bottom lines were largely attributable to the Mellanox acquisition which closed in April of last year. But the company nonetheless executed to its strengths. As such, investors will want to see if these trends can continue on Wednesday to determine whether the stock, which has been punished during the tech selloff, can reach new highs. Nvidia’s guidance on Wednesday will be the key factor in whether the stock continues its march higher or succumbs to profit taking.
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