Nvidia Q4 Earnings Preview: Chipmaker Not Out Of The Woods, But Analysts Focus On Long-Term Opportunity

Graphics chip giant Nvidia Corp. NVDA shares saw a nice upward bounce ahead of Tuesday’s sell-off amid the surge of interest in artificial intelligence technology-related stocks.

The stock is up about 41% for the year. As the broader market sentiment turned decisively negative on Tuesday, traders may hope that Nvidia’s earnings, due after the market close on Wednesday, could give the boost that the market needs to regain the lost momentum.

Nvidia Staring At Another Revenue Drop: Santa Clara, California-based Nvidia is widely expected to report earnings per share, or EPS, of $0.81, a decline from the year ago’s $1.32 but better than the third quarter’s $0.58.

Analysts’ average estimate has not changed much since the beginning of the quarter. Nvidia’s actual EPS trailed the consensus in the past two quarters.

Team Green will likely ring in revenue of $6.01 billion, a 21.4% decline from the $7.64 billion the company reported a year ago. Sequentially, the consensus expectation suggests 1.5% topline growth.

Rosenblatt semiconductor analyst Hans Mosesmann said he expects Nvidia to deliver on fourth-quarter expectations on a “gradual return to sell-in match-up top sell-through in Gaming and early ramp/momentum of the new Hopper GPU/Compute cycle.”

Oppenheimer analyst Rick Schafer also echoed a similar sentiment. He expects an in-line to a better print.

See also: Best Semiconductor Stocks

Nvidia’s Sum-Of-The Parts: Until the semiconductor downturn began amid the global economic uncertainty and inventory correction, Nvidia derived roughly equal proportion of revenue from its Data Center and Gaming segment.

Data Center’s share of total revenues was roughly 64.6% in the third quarter, while Gaming revenue’s contribution tapered off from roughly 44% in the first quarter of 2023 to 26.5% in the third quarter. The rest of the segments, namely Professional Visualization, Autos and OEM & Other, contribute under 5% each to total revenue.

Forward Outlook: The consensus expectations for the near term suggest the weakness could linger into the early part of the year before things turn around.

For the first quarter of fiscal 2024, analysts target EPS of $0.86, down from the year ago’s $1.36, and revenue of $6.34 billion, a 23.50% year-over-year decline. The fiscal year 2023's revenue, however, is expected to rise 8.6% to $29.23 billion, partly reflecting the easier comparison.

Rosenblatt’s Mosesmann expects the outlook to be balanced, with Gaming weakness at the low end, strong at the high end, and Hopper momentum. “We expect year estimates for Nvidia to be roughly maintained, which makes NVDA shares dangerous for shorting in the near future,” he added.

On the earnings call, investors may want to hear from CEO Jensen Huang and his team details on the outlook for the Data Center amidst growing concerns over hyperscale spend plans.

KeyBanc Capital Markets analyst John Vinh called for near-term volatility in the stock. “Given the recent run-up in the stock, we believe some NT volatility is possible but believe investors will largely look through the NT guide-down and focus on the LT growth opportunity in AI/ML enhanced by recent developments in generative AI,” he added.

Nvidia's stock was trading up 0.77% at $208.15 on Wednesday morning, according to Benzinga Pro data. The average analysts’ price target for Nvidia stock, compiled by TipRanks, is $234.14, suggesting about 13% upside potential.

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