It has been about a month since the last earnings report for NVIDIA CorporationNVDA . Shares have added about 1.1% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is NVDA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
NVIDIA Q1 Earnings & Revenues Top Estimates, Grow Y/Y
Maintaining its earnings streak for the 12th straight quarter, NVIDIA reported splendid first-quarter fiscal 2019 results, wherein it not only marked strong year-over-year improvement but also trumped the Zacks Consensus Estimate. The company's results also beat estimates on all fronts.
Revenues not only surged 66% year over year to $3.21 billion but also comfortably surpassed the Zacks Consensus Estimate of $2.91 billion as well as management's projection of $2.90 billion (+/-2%). The year-over-year improvement was primarily backed by growth across all platforms - GPUs for gaming, Professional Visualization, datacenter and Tegra automotive. Further, NVIDIA continued to gain traction in the artificial intelligence (AI) space which proved conducive to quarterly revenues.
Revenues at the GPU business jumped 77% year over year to $2.77 billion on strength in GeForce GPUs for Gaming and datacenter. Strong demand for cryptocurrencies stemmed from increased adoption of Bitcoin and latest digital currencies like Ethereum also helped bump up demand for GPU, thereby driving GPU sales. Moreover, the Nintendo Switch, which was launched in March 2017, contributed to overall growth.
Tegra processor revenues totaled $442 million, up 33% on a year-over-year basis. The increase was primarily buoyed by better-than-expected growth in Tegra development services.
Revenues at Gaming GPU were up 68% on a year-over-year basis to $1.72 billion on the back of demand across all regions and form factors.
The company's continued focus on introducing fast and innovative products as well as agreements with leading PC game makers has been driving the Gaming GPU business. During the reported quarter, NVIDIA unveiled real-time ray tracing technology, NVIDIA RTX which is likely to take gaming experience to a whole new level. Hence, the product launch will help NVIDIA expand its customer base and in turn drive additional revenues.
During the CES 2018 event, the company rolled out a hardware "big format gaming displays, or BFGDs" in collaboration with HP Inc., Asus and Acer to reach phenomenal gaming experience to an enormous screen of 65 inches.
According to the company, BFGDs put together "a high-end 65-inch, 4K 120Hz HDR display with NVIDIA G-SYNC technology together with NVIDIA SHIELD, the world's most advanced streaming device." NVIDIA says that the combination of these technologies will give users a "buttery-smooth gaming experience" as well as enable them to stream their favorite streaming applications such as Netflix, Gaming Video, YouTube and Hulu.
Meanwhile, revenues from datacenter increased 71% year over year to $701 million, mainly fueled by strong adoption of AI, deep learning, high-performance computing (HPC) and strong traction of the new Volta architecture.
The company's Volta-based V100 accelerator hogged the maximum limelight. The Volta architecture GPU provides 5 times more deep learning power to the company's GPU predecessor, Pascal. NVIDIA's Volta GPUs saw strong adoption across the globe over the past year and per the company, every major cloud provider and server maker including Alibaba, Baidu, Tencent, Amazon, Facebook, Alphabet and Microsoft are using this.
Demand for NVIDIA's AI supercomputer remained high as more organizations are keen on building AI-enabled applications.
Growing traction of AI among other vertical industries like transportation, energy, manufacturing, smart cities, and healthcare is also benefiting NVIDIA. Notably, more than 1,200 companies are using this inference platform, including Amazon, Microsoft, Facebook, Google, Alibaba, Baidu, Hi Vision and Tencent.
Automotive revenues in the reported quarter totaled $145 million, reflecting an increase of 4% year over year.
At CES 2018, the company announced a number of contracts in the self-driving space with the likes of Uber, Volkswagen, Aurora, Baidu and ZF Friedrichshafen AG. During the fiscal first-quarter conference call, NVIDIA noted that over "370 companies and research institutions" are using its Drive platform.
Moving to Professional Visualization, revenues increased 22% year over year to $251 million on elevated demand for real-time rendering tools like AR and VR.
Going ahead, the company provided crypto-specific revenues data from the first time which came in at $289 million. However, for the current quarter, it predicts revenues from this business to take a hit and be about one-third of the first-quarter level.
NVIDIA's non-GAAP gross margin expanded 510 basis points (bps) from the year-ago quarter to 64.7%, which exceeded management's guidance of 63% (+/-50 bps).
In dollar terms, non-GAAP gross profit came in at $2.08 billion, reflecting an increase of 79.9% from the year-ago quarter, primarily on the back of strength in value-added platforms.
Non-GAAP operating expenses swelled around 25.3% from the year-earlier quarter to $648 million due to higher investment in growth areas, including gaming, AI and self-driving cars. Non-GAAP operating expenses were slightly higher than the company's projection of $645 million. As a percentage of revenues, operating expenses, however, contracted to 20.2% from 26.7% in the year-ago quarter.
Consequently, NVIDIA's non-GAAP operating margin was up from 32.9% to 44.5% in the quarter under review. In dollar terms, non-GAAP operating income jumped from $637 million to $1.43 billion.
Non-GAAP net income during the quarter came in at $1.29 billion as compared with $533 million a year ago. On per share basis, the company's non-GAAP earnings came at $2.05 compared with 85 cents posted in the year-ago quarter. Quarterly earnings also surpassed the Zacks Consensus Estimate of $1.65.
Balance Sheet & Cash Flow
NVIDIA exited the fiscal first quarter with cash, cash equivalents and marketable securities of $7.30 billion compared with $7.11 billion in the previous quarter. NVIDIA's long-term debt was $1.99 billion. Free cash flow during the quarter came in at $1.33 billion, while cash flow from operations was $1.45 billion. During the quarter, the company returned approximately $746 million in the form of share repurchases and dividend payouts.
The company issued its outlook for second-quarter fiscal 2019. For the quarter, NVIDIA expects revenues of $3.10 billion (+/-2%).
Non-GAAP gross margin is projected at 63.5% (+/-50 bps). Non-GAAP operating expenses are expected at $685 million. Both GAAP and non-GAAP tax rates are projected at 11% (+/-1%).
For fiscal 2019, the company expects to return $1.25 billion to shareholders in the form of cash dividends and share buybacks.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been 11 revisions higher for the current quarter. Last month, the consensus estimate has shifted by 14.2% due to these changes.
NVIDIA Corporation Price and Consensus
At this time, NVDA has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than momentum investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise NVDA has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.