Looking Beyond The Shiny Surface Of Nvidia's Big Q2 Beat

Reviewing NVIDIA Corporation NVDA's second-quarter results, Barclays probed beyond the shiny surface of the company's beat-and-raise quarter.

Nvidia shares were down 4.15 percent to $157.91 at time of writing.

Barclays has an Equal-Weight rating on the shares of Nvidia and a $140 price target.

Fickle Crypto Currency Revenue

Analysts Blayne Curtis and Christopher Hemmelgam noted that the majority of the beat came from crypto, while data center revenues missed expectations. The analysts referred to a previous note of theirs, where they outlined how fickle the revenue stream from cryptocurrency is. Accordingly, the analysts were not in favor of assigning a multiple to it, as it becomes an eventual headwind.

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Above-Par Q2 Headline Numbers; Miss on Data Center & Auto

Barclays noted that the second-quarter revenues of $2.23 billion exceeded the consensus estimate of $1.96 billion, helped by crypto. Gaming, OEM & IP and professional visualization also slightly outperformed, the firm said.

However, the firm noted that data center and auto revenues were less than expected. Despite the slight decline in gross margins and higher operating expenditure, the firm said the earnings per share exceeded estimates due to higher revenues.

Citing continued crypto demand for the foreseeable future, the firm noted the company guided third-quarter revenues to $2.30 billion to $2.40 billion, ahead of the $2.13 billion consensus estimate. Meanwhile, the firm expects data center to grow as Volta ramps up.

The firm also said the company's revenue, gross margin and operating expenditure guidance suggests above-consensus earnings per share for the third quarter.

Cleaner Beats Needed For Valuation

In order to trade at 40–50 times multiple, Barclays thinks Nvidia has to have cleaner beats and show stronger growth in the segments core to its longer-term story.

"Net-net, crypto will be a minor near-term headache but we remain EW as we maintain our belief longer term that GPUs will not be the ultimate AI solution and with such a lofty multiple, this stock can't afford to have a Data Center pause before that competition arrives next year," the firm said.