Nvidia Q3 Earnings Preview: A Tale Of Outstanding Fundamentals, Pricey Stock

Following Intel Corporation INTC and Advanced Micro Devices, Inc. AMD, it's now NVIDIA Corporation NVDA's turn to roll out its quarterly financial scorecard.

Nvidia is scheduled to release third-quarter results after Thursday's close.

Lofty Q3 Expectations And A Chance To Outperform

Analysts, on average, expect Nvidia to report earnings of 94 cents per share on revenue of $2.36 billion. This represents an increase from the 83 cents per share in earnings and $2 billion in revenue reported a year ago.

The consensus earnings estimate hasn't moved much over the past two months, although it has increased substantially from the 78 cents per share estimated 90 days ago.

The company is in the habit of consistently beating estimates, with the average upside relative to expectations in the past four quarters at 29 percent.

Nvidia guided to Q3 revenues of $2.35 billion, give or take 2 percent, and non-GAAP gross margin of 58.8 percent at the time of its second-quarter report.

Analyst: Cryptocurrency Could Boost Results

Upside exists for the consensus estimates on Nvidia's third and fourth quarters, Oppenheimer analyst Rick Schafer said in a Sunday note. The positive opinion comes from continued data center and gaming momentum, Schafer said. Oppenheimer projects that cryptocurrency, which accounted for 7 percent of Q2 revenues, to provide a lift to the Q3 results too. (See Schafer's track record here.)

Oppenehimer expects the sequential growth in data center revenues to re-accelerate from the 2 percent in Q2, as Nvidia's GPU AI accelerators ramp up more volume.

Nvidia does not face material pressure from AMD's Radeon Instinct server accelerators or high-end Vega PC GPUs, Schafer said of the company's competition.

Coming Off Solid Q2

Nvidia reported revenues of $2.23 billion, up 56 percent, in its Q2 results Aug. 10. The segment-wise revenue break-up is as follows:

• Gaming: $1.186 billion (53 percent of the total)
• Datacenter: $416 million (19 percent)
• OEM & IP: $251 million (11 percent)
• Professional visualization: $235 million (10.5 percent)
• Auto: $142 million (6 percent)

The non-GAAP earnings per share almost doubled to $1.01 per share.

Outlook

For the fourth quarter, analysts expect earnings of 97 cents per share on revenues of $2.43 billion, up 12 percent year-over-year. The fastest year-over-year revenue growth was exhibited by the datacenter business, which grew by 190 percent, followed by gaming at 52 percent.

The consensus expectations for fiscal year 2017 call for earnings of $3.63 versus $2.57 in 2016 and revenues of $8.97 billion versus $6.91 billion last year.

Key Q3 Developments

During the quarter, Nvidia announced a partnership with Chinese search engine Baidu Inc (ADR) BIDU to supply its Volta GPUs to Baidu Cloud and leverage its DRIVE PX Platform for the Chinese company's self-driving car initiative.

In August, Nvidia announced it has joined a group of investors led by SINA Corp SINA in investing over $20 million in Chinese startup TuSimple, which develops technology for autonomous long-distance freight delivery.

Pricey Shares?

For the year-to-date period, Nvidia shares have gained about 96 percent, and the stock has been up a more modest 45 percent since the start of Q3.

The average analyst rating for Nvidia shares is a Buy and the average price target is $172.08, according to Yahoo database.

Oppenheimer said it remains sidelined, as expectations for Nvidia are running high.

"We applaud management's execution utilizing NVDA's GPU and parallel processing expertise to position the company as the premier play on secular growth themes: AI, autonomous driving and gaming. At these levels, however, we see risk/reward as balanced," Schafer said.

Oppenheimer has a Perform rating on Nvidia.

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Photo courtesy of Nvidia.