It has been about a month since the last earnings report for Nvidia (NVDA). Shares have lost about 0.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Nvidia due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
NVIDIA Q3 Earnings & Revenues Top, View Encouraging
NVIDIA delivered third-quarter fiscal 2021 non-GAAP earnings of $2.91 per share, beating the Zacks Consensus Estimate by 13.2%. The reported figure also surged 63% year over year and 33% sequentially.
Revenues of $4.73 billion beat the consensus mark by 7% and jumped 57% year over year as well. The top line also climbed 22% sequentially.
The COVID-19 pandemic negatively impacted the company’s professional visualization and automotive businesses during the reported quarter. Nevertheless, strong data-center and gaming performances offset these negatives to a large extent.
Segment Details
Beginning first-quarter fiscal 2021, NVIDIA started reporting revenues under two segments — Graphics and Compute & Networking.
Graphics include GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro GPUs for enterprise design; GRID software for cloud-based visual and virtual computing; and automotive platforms for infotainment systems.
Graphics accounted for 59% of revenues. The segment top-line figure grew 25% year over year and 34% sequentially.
Compute & Networking represented 41% of third-quarter fiscal 2021 revenues. The segment comprises Data-Center platforms and systems for AI, HPC, and accelerated computing; DRIVE for autonomous vehicles; and Jetson for robotics and other embedded platforms.
Compute & Networking revenues soared 146% from the year-ago quarter and 9% sequentially.
Market Platform Top-Line Details
Based on the market platform, Gaming revenues (48% of revenues) were up 37% year over year as well as sequentially to $2.27 billion on higher sales across the company’s notebook and desktop gaming GPUs and game console SOCs.
Revenues from Data Center (40% of revenues) soared 162% year over year and 8% sequentially to $1.9 billion. This upswing was mainly driven by revenue contribution from the Mellanox acquisition and ramp up of the company’s Ampere architecture products. Mellanox contributed a third of data-center revenues and 13% to the company’s overall revenues.
Professional Visualization revenues (5% of revenues) slid 27% year over year to $236 million mainly due to lower demand of desktop workstations. However, the segment’s revenues marked a sequential improvement of 16% primarily due to the rebound in mobile workstations amid the remote-working trend.
Automotive revenues (3% of revenues) in the reported quarter totaled $125 million, down 23% on a year-over-year basis on decline in legacy infotainment module revenues and reduced autonomous driving development agreements. Nonetheless, the division’s sales increased 13% sequentially on higher sales of AI (artificial intelligence) cockpit solutions.
OEM and Other revenues were up 36% year over year and 33% sequentially to $194 million (4% of revenues). This year-over-year and sequential growth primarily resulted from higher demand for entry-level laptop GPUs.
Operating Details
NVIDIA’s non-GAAP gross margin expanded 140 basis points (bps) from the year-ago quarter to 65.5%, reflecting product mix shift to higher data-center and lower automotive businesses, partially offset by lower margins in gaming. Sequentially, non-GAAP gross margin contracted 50 bps chiefly due to product mix shift to lower margin gaming business from higher margin data-center business.
Non-GAAP operating expenses flared up 42% year over year and 6% sequentially to $1.04 billion on increased headcount and the Mellanox acquisition-related costs.
Non-GAAP operating income soared 72% year over year and 31% sequentially to $1.99 billion.
Balance Sheet and Cash Flow
As of Oct 25, 2020, NVIDIA’s cash, cash equivalents and marketable securities were $10.14 billion, down from $10.98 billion as of Jul 26.
As of Jul 26, total long-term debt (including current maturities) was $6.96 billion, flat with the fiscal second quarter.
The company generated $1.28 billion in operating cash flow, down from the year-ago quarter’s $1.64 billion and the previous quarter’s $1.57 billion. Free cash flow was $806 million, down from the prior-year period’s $1.54 billion as well as the last quarter’s $1.35 billion.
In the first nine months of fiscal 2021, the company generated operating and free cash flows of $3.76 billion and $2.91 billion, respectively.
During the fiscal third quarter, NVIDIA paid dividends of $99 million. The company is committed to paying its quarterly dividend. During the first nine months of fiscal 2021, the company returned $296 million in dividend to shareholders.
Guidance
The company noted that the fiscal fourth quarter would be of 14 weeks and therefore, would bring incremental revenues as well as operating expenses. NVIDIA projects its Gaming segment revenues to increase sequentially despite typically a seasonally down quarter, mainly aided by the ramp up of new RTX 30 series products.
For the Data-Center division, it forecasts revenues to decline quarter on quarter. NVIDIA further projects sequential revenue growth on the Automotive and Professional Visualization market platforms, though both businesses are still expected to witness year-over-year declines.
Based on the above assumption, the company expects its Compute & Networking revenues to grow in the mid-single-digit range sequentially and offset the negative impact of the quarter-on-quarter decline in Mellanox revenues to a large extent.
For the fourth quarter of fiscal 2021, NVIDIA anticipates revenues of $4.8 billion (+/-2%).
Non-GAAP gross margin is projected at 65.5% (+/-50 bps). Non-GAAP operating expenses are estimated to be $1.18 billion.
Capital expenditures are expected to be approximately $300-$325 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 16.3% due to these changes.
VGM Scores
Currently, Nvidia has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Nvidia has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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