The Tech Side Of The Earnings Week Ahead

Besides retailing earnings reports, Cisco CSCO, Nvidia NVDA, and Applied Materials AMAT are scheduled to report earnings this week.

Nvidia and Applied Materials enjoyed impressive growth in revenue and earnings due to favorable demand trends and the outlook seems just as bright. Cisco, on the other hand, can show it can pivot quickly to new growth businesses to offset the revenue declines in the legacy segments.

Cisco

After the close on Wednesday, Wall Street expects Cisco to report revenue of $13.02 billion that translated to earnings of 82 cents per share. Since last November, shares rose about 50%, both due to the economic recovery and the rising demand for infrastructure and networking services.

Although the pandemic forced enterprises and commercial customers to either delay orders or suspend projects, Cisco is well-positioned to meet the rising demand for digital networks for educational and business purposes. Moreover, recent acquisitions confirm that Cisco is on the path of transforming its business model towards software and services that generate high recurring revenues. With its diligent cost controls, it managed to amass significant financial firepower for more acquisitions or organic expansion.

Nvidia

On the same day, Wall Street expects Nvidia to report the top line of $6.34 billion that resulted in a bottom line of $1.02 per share. Nvidia's shares rose 33% year to date and 52% over the past year, making the graphic chip powerhouse one the best performers in the entire tech sector. Nine straight quarters of earnings beats have been a result of Nvidia's growth capabilities in key markets for graphics cards, particularly those used in video games. What's more, the company has taken the lead in chip productions for high-growth areas such as network data-center, autonomous driving, and artificial intelligence.

The good news is that its impressive growth rates seem to be here to stay. The chip giant had pointed out in April that 85% of its installed base is yet to upgrade to an RTX series card, soi the momentum of the gaming business that produced nearly 49% of its revenue and registered 106% top-line growth YoY over the first quarter is set to continue.

The second-most important growth catalyst is the data center business that grew 79% YoY in the first quarter and contributed 36% to total revenue that was Nvidia's first-ever $2 billion quarter. Solid growth is expected this time around as well as its GPUs are the dominant chips being deployed by hyper-scale data centers and cloud service providers for their artificial intelligence workloads.

The demand for data center GPUs is expected to grow at an annual rate of 43.5% through 2026 to $26.2 billion and considering Nvidia's data center revenue amounted to $6.7 billion last fiscal year, it still has a lot of room to run.

Applied Materials

For the third quarter, Applied Materials anticipates $5.92 billion in revenue and adjusted earnings of $1.76 per share at the midpoint of its guidance range, which would translate into a 34% YoY revenue jump and a 66% increase in earnings per share.

During the last earnings call in May, CEO Gary Dickerson pointed out that the company is "still in the early innings of major secular trends that will play out over the next decade". In simple words, investors need to focus on the big picture beyond this week's earnings report as the favorable conditions driving the company's growth can well last even beyond 2022. Applied Materials has been outpacing the industry's growth. Its semiconductor equipment business expanded 23% in 2020, going ahead of the broader market's 19% growth pace. Industry association SEMI estimates that semiconductor equipment sales could reach $95.3 billion this year, rising from last year's $71.1 billion. The growth trend is expected to continue in 2022 with semiconductor investments expected to exceed $100 billion.

Taiwan Semiconductor Manufacturing Limited TSM announced earlier this year that it will be investing $100 billion over the next three years to boost capacity whereas the Korean giant Samsung is planning to commit $151 billion in non-memory chips until the end of the decade. These tailwinds indicate why Applied Materials is on track to enjoy growth both over the short and the long haul.

See also: How to Buy NVIDIA Stock

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