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. Up 132% year to date, while surging 126% over the past year, shares of the graphic chip powerhouse has been one of the best performers in the entire market.
Is now the time to take profits? Nvidia will report third quarter fiscal 2021 earnings results after Wednesday’s closing bell. Ten 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. And with the recent excitement surrounding Meta's (FB) advancements with Metaverse and the graphic chips it will require, Nvidia is poised to be a winner.
In the wake of Nvidia’s Omniverse presentation, which is Nvidia’s software 3D virtual world platform (the structural foundation of Meta's Metaverse vision), Rosenblatt Securities analyst Hans Mosemann recently boosted Nvidia’s price target to $400 from $300. "Nvidia is so, so far ahead of any chip company in virtual world dynamic it's not even close,” noted Mosemann. Adding, ”Nvidia has planted the seeds of accelerated computing triangulating the major parties to create a secular movement: gamers, scientists, auto industry, operations optimization, robotics, and creators.”
What’s more, the company has taken the lead in chip productions for others areas such as autonomous driving and artificial intelligence. Mosemann referred to Nvidia as a best-in-class artificial intelligence play. Meanwhile, unlike many of its chip rivals, Nvidia continues to demonstrate not only strong financial performance, it has been less impacted by the chip shortage. 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 October, Wall Street expects the Santa Clara, Calif.-based company to earn $1.11 per share on revenue of $6.82 billion. This compares to the year-ago quarter when earnings came to 73 cents per share on revenue of $4.73 billion. For the full year, ending January, earnings of $4.14 per share would rise 65% year over year, while full-year revenue of $25.78 billion would rise 54.6% year over year.
The expected 54.6% rise in fiscal 2021 revenue is impressive, considering the fact that it doesn’t included the company’s growth strategy for its Omniverse. "We will jump from different virtual worlds like we do in hypertext today," CEO Jensen Huang touted at the company’s GTC event last week. A platform involving 3-D, artificial intelligence and other technologies, the Omniverse will enable developers and consumers to work and communicate with each other in real-time situations.
Think cloud-shared documents for 3D design, robot-controlled virtual factories and climate forecasts for the entire globe, Huang said. That market opportunity makes Nvidia growth potential even more appealing, removing any concerns about valuation. Meanwhile, the company continues to dominate its current market, beating on both the top and bottom lines in Q2. During which revenue jumped 68% year over year, while EPS surged 89% to $1.04 per share.
Execute to its strengths, the Q2 beat was driven by accelerated growth in gaming and datacenter segments which both posted record revenue. As such, investors will want to see if these trends can continue on Wednesday. Investors will also want an update on the Omniverse revenue strategy which could be the key factor in whether NVDA stock continues its march higher or succumbs to profit taking.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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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