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Nvidia Q3 Earnings Preview: Analysts Forecast Data Center, Gaming, Automotive Performance

Nvidia Q3 Earnings Preview: Analysts Forecast Data Center, Gaming, Automotive Performance

At a time when tech stocks have entered a rough patch amid broader market volatility, NVIDIA Corporation (NASDAQ: NVDA) is gearing up to release its fiscal 2018 third-quarter results Thursday, Nov. 15 after the market close.

The Headline Numbers

Analysts, on average, expect the company to report earnings of $1.71 per share on revenue of $3.24 billion.

This compares to the year-ago EPS of $1.33 and revenue of $2.64 billion.

Nvidia often reports big earnings beats, with an average upside of 33.35 percent to estimates in the last four quarters.

On a sour note, the consensus EPS estimate has been revised lower from $1.81 to $1.71.

Data Center: The Pivot

RBC Capital Markets expects Nvidia's data center segment to drive upside that flows through the income statement, analyst Mitch Steves said in a preview note.

The analyst forecast for data center revenue to exceed the Street and buy-side expectations and drive margins higher.

Steves sees robust growth potential for the data center segment along with virtual reality.

"Importantly, we think the DGX-1v product will continue to gain traction over the next several quarters."

Multiple Tailwinds In Gaming

Gaming, which is Nvidia's largest segment, has solid long-term prospects thanks to the complexity of video games, VR and the potential for more customers shifting from Advanced Micro Devices, Inc. (NASDAQ: AMD) products to Nvidia, Steves said.

The imminent release of over 30 new games as well as secular growth trends in esports could cushion weakness in gaming that stems from an inventory glut, JPMorgan's Harlan Sur said in a note.

In the view of RBC's Steves, the segment is likely to grow in the mid-single digits in the long run.

Goldman Sachs analyst Toshiya Hari said near-term estimates faces marginal downside risk due to inventory correction and a prolonged product cycle in the core gaming business.

That said, the analyst sees any downside as being transient in nature.

Crypto Weakness: A Non-Event?

Fears of a bigger miss are overdone, and the downside in crypto revenues could be in the $50-million range, said RBC's Steves.

Following AMD's results that showed about a $200-million hit to cryptocurrency-related revenue, fears of a similar predicament at Nvidia are on the rise.

Seeking Alpha contributor Mark Hibben said Nvidia is likely to circumvent the weakness, as the company and its add-in-board partners have created a line of GPU add-in boards tailor-made for crypto mining that lack video outputs and therefore can't be recycled as PC video cards.

This makes the crypto-mining card less expensive and also prevents a potential glut on the used market that impacts gaming card sales, Hibben said.

Among other segments, RBC is positive on automotive, a sector where Nvidia recently ramped up its efforts.

The Stock

Nvidia shares are up 6.5 percent year-to-date, a far cry from the roughly 82-percent gains notched by the shares for 2017.

RBC said it projects that the data center business will outdo expectations, and the softness in gaming is already reflected in the stock price.

"Given this dynamic, we are positive on the print and view the stock as oversold on gaming fears and data center slowdown fears." 

RBC reiterated an Outperform rating on Nvidia with a $310 price target.

Goldman recommends using the recent pullback in Nvidia as a buying opportunity, with the firm's 12-month price target of $283 suggesting 38-percent upside potential.

The firm's long-term bull thesis is predicated on "continued growth in gaming, data center and professional visualization aided by gross and operating margin expansion."

Goldman has a Buy rating on Nvidia shares.

Based on a straddle option strategy, Nvidia stock could move 18 percent in either direction of the $205 strike price on options due to expire Dec. 21, according to Investopedia. This would mean a $168-$242 move.

The implied volatility for the options at the strike price is also high.

Related Links:

Morgan Stanley's Bull Case For Nvidia Unchanged By Near-Term Concerns

Goldman Sachs Adds Nvidia To 'Conviction Buy' List

Photo courtesy of Nvidia.

Latest Ratings for NVDA

Oct 2019MaintainsBuy
Oct 2019MaintainsBuy
Oct 2019MaintainsOutperform

View More Analyst Ratings for NVDA
View the Latest Analyst Ratings

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