Semiconductor specialist Nvidia (NVDA) will report fourth quarter fiscal 2021 earnings results after Wednesday’s closing bell. Eleven 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 that are used in video games and datacenters.
But the company’s flawless execution over the past two years hasn’t shielded it from macro-economic and supply chain headwinds that has lead to the recent punishment in tech stocks. NVDA stock has also fallen some 40% since its November all-time high. Some of that decline has also been due to the canceled deal for Arm Limited, where NVDA cited "significant regulatory challenges” as the reason for calling off the deal. This $40 billion deal, which had been in the works since September 2020, would have been the largest-ever in the chip sector.
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. Estimates suggest that roughly 70% of the global population is using products powered by Arm’s technology every day. The market wants to see how Nvidia management plans to pivot. The recent excitement surrounding Meta Platform’s (FB) advancements with Metaverse and the graphic chips it will require is one way to pivot.
What’s more, when factoring Nvidia’s reach in datacenter and AI computing, the company has demonstrated its innovative qualities in graphic chips and computing technology. While it’s hard to say whether Nvidia is better off without Arm, there are certainly positives to consider, including the regulatory overhang now being gone, along with the associated risk of of integrating both companies. Plus, NVDA stock has become significantly more attractive after falling from its peak. On Wednesday investors will nonetheless want Nvidia to highlight its strengths.
For the three months that ended January, Wall Street expects the Santa Clara, Calif.-based company to earn $1.22 per share on revenue of $7.42 billion. This compares to the year-ago quarter when earnings came to 77 cents per share on revenue of $5 billion. For the full year, earnings of $4.34 per share would rise 72% year over year, while full-year revenue of $26.68 billion would rise 60% year over year.
The expected 60% rise in fiscal 2021 revenue is impressive, considering the fact that it doesn’t include the company’s growth strategy for its Omniverse platform, which will help service the Metaverse. Rosenblatt Securities analyst Hans Mosemann recently boosted Nvidia’s price target to $400 from $300, citing the company's Metaverse capabilities. ”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,” noted Mosemann.
Until the Metaverse is fully realized, Nvidia’s dominance of its current market remains the key to its growth evidenced by the third quarter results during which revenue of $7.1 billion rose 50% year over year, while EPS of $1.17 beat estimates by 9 cents. Q3 gaming revenue surged 42% to $3.22 billion, while data-center revenue climbed by 55% to $2.94 billion. Responding to a question about the Omniverse, CEO Jensen Huang said, “This is the tip of the iceberg of what’s to come.”
“Omniverse brings together Nvidia's expertise in AI, simulation, graphics and computing infrastructure," Huang said. As such, aside from evidence that Nvidia can sustain it growth metrics, investors will want an update on the Omniverse revenue strategy which could be the key factor in the stock’s near term direction.
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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