What to Expect From the NVIDIA Q1 Earnings Report

NVIDIA Q1 Earnings Report
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NVIDIA Q1 Earnings Report

Some people look forward to birthdays, vacations, and fancy dinners. I, on the other hand, wait impatiently for companies like NVIDIA Corporation (NASDAQ:NVDA) to announce their quarterly reviews. As soon as they do, I pin the NVIDIA earnings report date to my calendar.

(Don’t judge me!)

In preparation for the upcoming NVIDIA Q1 earnings call—scheduled after the market close on May 10, 2018—I’ve cobbled together a list of numbers to watch.

But first, context.

This report comes on the heels of a gigantic cryptocurrency crash, which could set back the company’s graphics card sales. After all, NVDA stock’s growth in the last two quarters of 2017 was largely driven by a surge in graphics card sales.

Another challenge is NVIDIA’s driverless car division.

Ever since a pedestrian was killed by an autonomous vehicle, companies have started to scale back their efforts in computer vision, which means they’re probably buying fewer microchips than before. NVIDIA itself halted self-driving tests after the accident.

The company will have to make it up in other ways.

3 Numbers to Watch

Below are three numbers we think could help:

  1. Gaming revenues. The word “gaming” calls to mind images of 13-year-olds hunched around a TV, but in reality, those kids grew up and got jobs. Now a huge portion of them spend their paychecks buying high-end video cards. NVIDIA dominates this end of the market, so it’s no wonder that analysts are hoping for 57% year-over-year growth. As long as the company sells $1.6 billion worth of gaming products, the stock market should be satisfied. Anything more and NVDA stock could skyrocket.
  2. Data center revenues. When it comes to cloud computing, Google—now Alphabet Inc (NASDAQ:GOOG)—and Amazon.com, Inc. (NASDAQ:AMZN) suck up all the oxygen in the room. Analysts don’t talk about anyone else, even though companies like NVIDIA supply the chips that make those data centers possible. The consensus estimate is that NVIDIA will deliver 60% growth in cloud computing, from $410.0 million to $656.0 million.
  3. Gross margin. Anyone who took Econ 101 knows the term “economies of scale.” It means that companies who produce in bulk generally make things cheaper because 1) they buy supplies en masse and 2) they don’t have as many startup costs. We could see NVIDIA demonstrate this economic principle in real time. After all, it has grown like crazy over the last two years. At the moment, NVIDIA has a gross margin of 61.9%, up 190 basis points from a year before.

(Source: “Nvidia earnings: Data center, gaming momentum need to distract from auto, crypto weakness,” MarketWatch, May 9, 2018.)

It’s possible that NVIDIA could surprise in one or more of these categories. Recent earnings announcements from other microchip makers showed strong demand in cloud computing, so it’s possible that NVIDIA can continue to outperform.

Analyst Take

I only have one worry about the NVIDIA stock price—that it might become a victim of its own success. It happens sometimes when a company beats expectations several quarters in a row.

Analysts start to see through rose-tinted glasses, skim over the company’s worst traits, and include outlandish assumptions that drive the share price absurdly high. Given that NVIDIA has exceeded expectations in six out of the last eight quarters, I have to mention that as a possibility. But I don’t think it’s very likely.

You see, NVIDIA just happened to have the right technology at the right time.

It caught massive tailwinds on the back of AI and cloud computing technologies, both of which are still in the middle of their growth cycles. So, there’s still a mountain of upside left untapped.

I expect the NVIDIA stock price to come charging out of the gate tomorrow. It’ll probably rise through regular trading hours, then again in after-market hours, following the NVIDIA Q1 earnings report, proving that no hurdle is too high for this gem of a company.