Nvidia’s (NVDA) Earnings Report Shows 8.1% Increase: Can This Continue?

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Nvidia’s last earnings report (NVDA), was just over a month ago. Shares have added about 8.1% in that time frame, outperforming the S&P 500.

Are investors and analysts likely to see a reversal in Nvidia’s recent positive trend leading up its next earnings release? Before we get into the reactions of analysts and investors, let’s first take a look at the most recent earnings release to gain a better understanding of the key catalysts.

NVIDIA Q3 Earnings Miss Estimates, Revenues Surpass

NVIDIA reported mixed results in the third quarter fiscal 2023. The Zacks Consensus estimate was not met by the bottom line, but the top line did exceed it. However, the third quarter’s earnings and revenues declined substantially year-over-year.

NVIDIA reported non GAAP earnings for the third quarter of 2015 at 58 cents per shared, missing the Zacks Consensus Estimate 17.1%. The reported figure fell 50% year-over-year, while sequentially it increased 14%. The decrease in earnings year-over–year was due to lower revenues as well as increased operating costs.

The third quarter revenues fell 17% year-over-year and 12% sequentially, to $5.93 Billion. This was primarily due to continuing weakness in its Gaming and Professional Visualization markets segments. The quarter’s top line was also affected by lower data center demand from China. However, the consensus mark for $5.81 billion was met by the top-line.

Segment Details

NVIDIA reports revenues under two segments — Graphics and Compute & Networking.

Graphics encompasses GeForce GPUs and personal computers, as well as the GeForceNOW game-streaming and infrastructure. The segment also provides solutions for gaming platforms, Quadro graphics cards for enterprise design, GRID software to cloud-based virtual and visual computing, and automotive platforms.

Graphics were responsible for 35.7% fiscal third-quarter revenue. The segment’s top line plunged 48% year over year and 24% sequentially to $2.12 billion.

Compute & Networking represented 64.3% of fiscal third-quarter revenues. This segment includes Data Center platforms, systems for artificial intelligence and high-performance computing, accelerated computing, and the DRIVE development platform to autonomous vehicles. Jetson is also included.

Compute & Networking revenues soared 27% year over year to $3.82 billion. However, the segment’s revenues declined 2% sequentially.

Market Platform’s Top Line Details

According to the market platform, Gaming revenues fell 51% year-over-year and 23% sequentially at $1.57 billion. They accounted for 26.5% total revenues. The decrease was primarily due a lower sale-in of Gaming products. This was due to a decrease in inventory by channel partners amid weak consumer demand.

Data Center revenues (64.6%) increased 31% year-over-year and 1% over the prior quarter to $3.83 Billion. The strong demand for its chips by U.S. cloud service companies, consumers internet companies, and other vertical industries drove this year-over-year increase.

However, softness in China and the U.S. government’s new restrictions on the export of A100 and H100-based products to China negatively impacted the top line.

Professional visualization revenues (3.4%) declined 65% year-over year and dropped 60% sequentially, to $200 million. This decline was primarily due a lower sell in to partners to help align channel inventories with current demand expectations.

Automotive sales (4.2% revenue) reached $251 million in the quarter reported, an increase of 86% year-over–year and 14% sequentially. The self-driving solution’s higher revenue contribution was the main driver of this increase.

OEM and Other revenues (1.3%) plunged 69% year-over-year and 48% sequentially to $73 millions. The weak performance of Cryptocurrency Mining Processors was the main reason for this decline. They generated only nominal sales in the third quarter, compared to $105million in the previous year. Moreover, lower Jetson and notebook OEM sales also negatively impacted the overall unit’s performance in the third quarter.

Operating Details

NVIDIA’s non-GAAP gross margin contracted by 10.9% year over year to 56.1%, mainly due to a $702 million charge for inventory, largely related to the lower Data Center demand in China. This was partially offset partly by a warranty benefit in the amount of $70 millions.

Non-GAAP operating expenses flared up 30% year over year and 3% sequentially to $1.79 billion on higher compensation-related expenses associated with employee growth and increased data center infrastructure-related expenses.

The non-GAAP operating profit fell 55% year over another to $1.54 trillion.

Balance Sheet and Cash Flow

As of Oct 30, 2022, NVDA’s cash, cash equivalents and marketable securities were $13.14 billion, down from $17.04 billion as of Jul 31, 2022.

The total long-term debt, including current maturities, was $10.95 Billion as of Oct 30, 2022. This is flat compared to the quarter ending Jul 31, 2022.

NVIDIA generated $392 million in operating cash flows, down from the year-ago quarter’s $1.52 billion and the previous quarter’s $1.27 billion. The free cash flow was an outflow of $156 million compared to the inflow of the year-ago quarter’s $1.28 billion and the previous quarter’s $824 million.

The company generated operating cash flows of $2.02 billion and $3.39 million respectively during the first nine month of fiscal 2023.

The company paid out $3.59 billion to shareholders in the third quarter through $100 million in dividend payments and $3.49 trillion in share repurchases. NVIDIA paid out $300m in dividends during fiscal 2023 and bought back common stock worth $8.83billion.

Fourth-Quarter Guidance

NVIDIA predicts that revenues will reach $6 billion 2% in the fourth quarter 2023 (a lower figure than the Zacks Consensus Estimate, which is $6.23 trillion). NVIDIA expects to see sequential growth in its Gaming segment. The company also predicts modest sequential growth in the Data Center, Automotive and Data Center divisions.

GAAP and non GAAP gross Margins are estimated at 63.2%, (+/-50bps. GAAP and non GAAP operating costs are projected at $2.56 billion each and $1.78 trillion, respectively.

GAAP and non GAAP other income and expenses are expected to be approximately $40 million, exempting gains and losses from nonaffiliated investments.

For the quarter, both GAAP and non GAAP tax rates are estimated at 9% 1%. The company plans to invest between $500m and $550m in capital over the quarter.

What has the evolution of estimates been since then?

Investors have seen a flat trend in revisions of estimates over the last month.

These changes have caused the consensus estimate to shift by -13.27%

VGM Scores

Nvidia currently has a low Growth Score of F. However, its Momentum Score is doing better with a score of D. The stock was assigned a grade F on the value side. This places it in the fifth quintile of this investment strategy.

The stock’s aggregate VGM Score is F. This score should not be confused with the score for one strategy.

Outlook

Nvidia currently has a Zacks rank #4 (Sell). The stock will see a lower return than the average over the next few month.

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