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NVIDIA (NVDA) Q2 Earnings & Revenues Top Estimates, Rise Y/Y

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NVIDIA Corporation (NVDA - Free Report) second-quarter fiscal 2019 results not only recorded strong year-over-year improvement but also trumped the Zacks Consensus Estimate.

The company’s non-GAAP earnings per share came in at $1.94, which increased 91% from the year-ago period and surpassed the Zacks Consensus Estimate of $1.84.

Revenues surged 40% year over year to $3.123 billion and beat the Zacks Consensus Estimate of $3.107 billion. It also exceeded management’s projection of $3.10 billion (+/-2%).

The year-over-year improvement was primarily backed by growth across all platforms — GPUs for gaming, Professional Visualization, datacenter and Tegra automotive. Further, NVIDIA continued to gain traction in the artificial intelligence (AI) space, which aided quarterly revenues.

However, the company foresees no contribution from cryptocurrency in the ongoing quarter and considers it to be immaterial in the second half of the year, making investors a little cautious.

NVIDIA Corporation Price, Consensus and EPS Surprise

NVIDIA Corporation Price, Consensus and EPS Surprise | NVIDIA Corporation Quote

Let’s now discuss the quarterly report.

Revenues    

Revenues at the GPU business jumped 40% year over year to $2.66 billion on strength in GeForce GPUs for Gaming and datacenter. Tegra processor revenues totaled $467 million, up 40% on a year-over-year basis.

Revenues at Gaming GPU were up 52% on a year-over-year basis to $1.80 billion on the back of demand across all segments. Desktop, notebook and gaming consoles noted double digit growth year over year.

Notebooks had a solid quarter on the back of strong demand for thin and right form factors based on the company’s Max-Q technology.

The company’s continued focus on introducing fast and innovative products as well as agreements with leading PC game makers like Electronic Arts has been driving the Gaming GPU business.

The company is benefiting from strong demand for gaming on the back of rising interest on Battle Royale games such as Fortnite and PUBG as well as growing popularity of e-sports.

During the reported quarter, NVIDIA unveiled its Turing architecture, which includes real-time ray tracing technology, RT Cores as well as Tensor Cores for AI inferencing. The technology is likely to take gaming experience to a whole new level. Hence, the product launch will help NVIDIA expand its customer base and in turn drive additional revenues.

Meanwhile, revenues from datacenter increased 83% year over year to $760 million, mainly fueled by strong adoption of AI, deep learning, high-performance computing (HPC) and strong traction of the new Volta architecture. The company’s Volta-based V100 accelerator hogged the maximum limelight.

Growing traction of AI among other vertical industries like transportation, energy, manufacturing, smart cities, and healthcare is also benefiting NVIDIA.

The company’s AI inference solution is helping it expand its total addressable market. During the quarter, NVIDIA launched Tensor RT 4, which helps in speech recognition, speech synthesis, translation, and recommendation systems. With this, the company expects to “address a much larger portion of deep learning inference workloads, delivering up to 190x performance speed-up relative to CPUs.”

Moreover, the company’s fully optimized AI server, DGX, was also a key growth driver of its datacenter business.

Automotive revenues in the reported quarter totaled $161 million, reflecting an increase of 13% year over year backed by increase in production of autonomous vehicle and AI-based smart cockpit infotainment solutions. Growing adoption of AI supercomputer DRIVE Pegasus for autonomous vehicles among major car makers like Daimler and Bosch is a tailwind.

Moving to Professional Visualization, revenues increased 20% year over year to $281 million on elevated demand for real-time rendering and mobile workstations and tools like AR and VR.  Management mentions that the expansion of these technologies across industries like healthcare, oil and gas, media and entertainment contributes to nearly 35% of Professional Visualization sales.

The launch of Turing-based processors — the Quadro RTX 8000, 6000 and 5000 — and RTX Server will help NVIDIA cater to the requirement of professionals in the media and entertainment, architecture and manufacturing industries.

The company’s OEM segment revenues declined 54% year over year due to sharp decline in cryptocurrency revenues. Revenues from crypto-specific products were $18 million in the quarter.

Margins

NVIDIA’s non-GAAP gross margin expanded 493 basis points (bps) from the year-ago quarter to 63.5%, which was in line with the guidance.

In dollar terms, non-GAAP gross profit came in at $1.98 billion, reflecting an increase of 51.8% from the year-ago quarter.

Non-GAAP operating expenses swelled around 29.8% from the year-earlier quarter to $692 million due to higher investment in growth areas, including gaming, AI and self-driving cars. Non-GAAP operating expenses were slightly higher than the company’s projection of $685 million. As a percentage of revenues, operating expenses, however, contracted 174 bps to 22.2%.

Consequently, NVIDIA’s non-GAAP operating margin was up from 667 bps to 41.3% in the quarter under review. In dollar terms, non-GAAP operating income jumped 67% year over year to $1.29 billion.

Balance Sheet & Cash Flow

NVIDIA exited the fiscal first quarter with cash, cash equivalents and marketable securities of $7.94 billion compared with $7.30 billion in the previous quarter. NVIDIA’s long-term debt was $1.99 billion.

Free cash flow during the quarter came in at $785 million, while cash flow from operations was $913 million.

During the first half of fiscal 2019, the company returned approximately $837 million in the form of share repurchases ($655 million) and dividend payouts ($182 million).

Guidance

The company issued its outlook for third-quarter fiscal 2019. For the quarter, NVIDIA expects revenues of $3.25 billion (+/-2%).

Non-GAAP gross margin is projected to be 62.8% (+/-50 bps). Non-GAAP operating expenses are expected to be $730 million. GAAP and non-GAAP tax rates are projected at 9% (+/-1%) each.

For fiscal 2019, the company expects to return $1.25 billion to shareholders in the form of cash dividends and share buybacks.

Zacks Rank and Stocks to Consider

NVIDIA currently has a Zacks Rank #3 (Hold).

A few top-ranked stocks in the broader Computer and Technology sector are Virtusa Corporation , Qualys, Inc. (QLYS - Free Report) and Fortinet, Inc. (FTNT - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Virtusa, Qualys and Fortinet is projected to be 20%, 8% and 16.8%, respectively.

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