Nvidia Q1 Earnings Preview: Will Stock See A Repeat Of The Q4 Surge?

Nvidia Corp. NVDA, one of the frontrunners in the artificial intelligence arms race, is all set to release its first-quarter results Wednesday after the market close.

Crunching Street View: Analysts, on average, expect Nvidia to report first-quarter earnings of $0.92 per share. This represents a 32.36% drop from the year-ago EPS of $1.36. Sequentially, the consensus expectation represents a 4.6% increase.

On a year-over-year basis, the chipmaker's revenue may have fallen 21.40% to $6.52 billion. This is essentially flat with the previous quarter's (Q4'23) $6.05 billion.

Nvidia, meanwhile, guided to a first-quarter revenue of $6.50 billion, plus or minus 2%, and a non-GAAP gross margin of 64.1%-66.5%. In the fourth quarter, the metric jumped 10 percentage points to 66.1%.

Raymond James analyst Srini Pajjuri said in a note this week that he expects Nvidia to report slightly better than expected results.

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Nvidia's Business Segments: A majority of revenue contribution is from Nvidia's data center business. In the fourth quarter of 2023, the company derived about $3.62 billion, or 60% of revenue, from this segment. Reflecting the soft data center trends, the segment’s revenue fell 5.7% sequentially, although improving about 11% from a year ago.

Gaming fetched the company $1.83 billion in the preceding quarter or roughly 30% of the total revenue. After steep sequential declines in the second and third quarters of the fiscal year 2023, the segment saw a bounce back in the fourth quarter.

KeyBanc Capital Market analyst John Vinh said he sees a modest miss for the gaming business due to the disappointing launch of the RTX4070. He also suggested supply will likely limit the more meaningful near-term upside for data center GPUs, including A100 and H100.

Professional visualization and autos contributed $226 million and $294 million, respectively in the fourth quarter. The latter saw a 135% year-over-year jump and a more modest 17% sequential increase, as demand from the vertical increased amid the rising adoption of autonomous driving assistance systems.

Nvidia's Forward Outlook: The second-quarter consensus estimates calls for EPS to jump 100% year-over-year to $1.06, benefiting from an easier comparison with the year-ago period. The Street expects revenue to rise 6.70% to $7.15 billion.

Sell-side is optimistic about the company's near term. Nvidia has a dominating positioning in generative artificial intelligence and will also benefit from multiple new product cycles across both data center and gaming, said KeyBanc's Vinh.

Pajjuri shares a similar view. "Generative AI demand is booming and H100 product ramps are in early stages, which should more than offset slower Cloud capex spending," he said.

The analyst sees the DGX Cloud, which is AI-training-as-a-service, as another incremental driver but expects its near-term contribution to be modest.  He is bullish on the company's AI/ML dominance, new product cycles, auto inflection and emerging software/services opportunity.

As CEO Jensen Huang and his team prepare to elaborate on the quarterly performance on the earnings call, investors will likely look ahead for more clarity on inflection in data center revenue, the impact of the geopolitical tensions between China and the U.S. and the AI opportunity.

Nvidia Price Action: Nvidia is the best-performing S&P 500 stock this year, having gained about 110% for the year-to-date period.

The stock's valuation could cause uneasiness among traders, as it trades at a forward P/E multiple of 63.29 compared to the average P/E of 24.7 for the tech sector.

The average price target for Nvidia stock, based on data compiled by TipRanks, is $307.37, which suggests a fractional upside from current levels. Out of the 33 analysts rating the stock, 26 have Buy ratings and seven have a Neutral stance toward the stock.

Following the fourth-quarter beat, the stock rallied over 14% in the very next session.

In premarket trading on Wednesday, Nvidia was slipping 1.57% to $306.88, according to Benzinga Pro data.

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