Nvidia's Q2 Likely To Be 'Noisy,' But Goldman Sachs Remains Bullish

After Advanced Micro Devices, Inc. AMD's stellar quarterly results sent its stock up by over 20 percent over six sessions, the spotlight now shifts to NVIDIA Corporation NVDA, which is scheduled to release second-quarter results after the close Aug. 16. 

Consensus Expectations

Analysts, on average, estimate earnings per share of $1.66 on revenue of $3.11 billion, up 39.3 percent year-over-year.

Brace For 'Noisy' Quarter

Following a 10-quarter streak of strong beat-and-raise quarters, Nvidia's Q2 is likely to be a "noisy" one, Goldman Sachs' Toshiya Hari said in a Tuesday preview note.

Due to the upcoming product transition in gaming, Hari said he sees revenue and earnings trickling in starting in Q4. The product transition in data center from 16GB to 32GB Nvidia Volta creates some uncertainty, the analyst said. (See Hari's track record here.)

Weakness in cryptocurrency mining and potential side effects in the core gaming GPU business could impact results, Hari said. 

Another hit could come from potential disruption tied to the virus attack at Taiwan Semiconductor Mfg. Co. Ltd. (ADR) TSM, with the Taiwanese foundry forecasting a 2-percent impact on its third-quarter revenue. 

Goldman's long-term thesis for Nvidia remains intact, the analyst said. 

"NVDA, in our view, is one of the few companies in our semiconductor coverage with exposure to multiple secularly growing end markets ... a deep and sustainable competitive moat and, as a result, a margin/return profile that significantly exceeds its peers." 

Goldman's Q2 Estimates

• Revenue: $3.13 billion, up 41 percent year-over-year but down 2 percent sequentially.
• Gross margin: 63.8 percent, a 546-basis point year-over-year expansion but a 64-basis-point quarter-over-quarter contraction.
• Operating margin: 37.9 percent, a 686-basis point year-over-year expansion and 260-basis point quarter-over-quarter contraction. 
• EPS, including employee stock options, of $1.70.

Hari recommends positioning for potential earnings upside with a $255 call option priced at $8.50. 

Street estimates could be revised upward, driving outperformance, the analyst said. 

Goldman updated its model following earnings reports from other cloud companies and raised its revenue and EPS estimates for Nvidia in 2019, 2020 and 2021. 

The Stock

Nvidia shares have gained about 31 percent year-to-date.

Goldman maintained a Buy rating on the shares and hiked its 12-month price target from $310 to $324, with the figure based on an unchanged multiple of 33 times applied to an upwardly revised 2020 EPS estimate of $9.81.

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Photo courtesy of Nvidia.