A month has gone by since the last earnings report for Nvidia (
NVDA Quick Quote NVDA - Free Report) . Shares have lost about 13% 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 Q2 Earnings & Revenues Beat Estimates
NVIDIA reported better-than-anticipated results for the second quarter of fiscal 2024. For the second quarter, NVIDIA reported non-GAAP earnings of $2.70 per share, which beat the Zacks Consensus Estimate by 29.2%. Moreover, the reported figure soared a whopping 429% year over year while increasing 148% sequentially. The robust increase in earnings was mainly due to higher revenues, an improved gross margin and lower operating expenses as a percentage of revenues.
Second-quarter revenues more than doubled on a year-over-year basis and climbed 88% sequentially to $13.51 billion. The robust growth in the top line was mainly driven by record sales in the Data Center end market, while its Gaming and Professional Visualization platforms continued to emerge from channel inventory corrections. The top line beat the consensus mark of $11.17 billion. Segment Details
NVIDIA reports revenues under two segments — Graphics and Compute & Networking.
Graphics includes GeForce GPUs for gaming and personal computers, the GeForce NOW game-streaming service and related infrastructure. The segment also offers 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 23% of fiscal second-quarter revenues. The segment’s top line soared 11% year over year while increasing 14% sequentially to $3.11 billion. Our second-quarter revenue estimate for Graphics segment was pegged at $4.24 billion.
Compute & Networking represented 77% of fiscal second-quarter revenues. The segment comprises Data Center platforms and systems for artificial intelligence, high-performance computing and accelerated computing, the DRIVE development platform for autonomous vehicles and Jetson for robotics and other embedded platforms.
Compute & Networking revenues soared 166% year over year and 133% sequentially to $10.4 billion. Our second-quarter revenue estimate for this segment was pegged at $6.72 billion.
Market Platform’s Top Line Details
Based on the market platform, Gaming revenues increased 22% year over year while growing 11% sequentially to $2.94 billion and accounted for 18.4% of the total revenues. The year-over-year and quarter-on-quarter growth was primarily driven by increased sales of its 40 series GeForce RTX GPUs (graphics processing units) for laptops and desktops. The company believes that demand has returned to growth after last year’s slowdown. Our estimate for Gaming end-market’s second-quarter revenue was pegged at $2.26 billion.
Revenues from Data Center (76.4% of revenues) jumped 171% year over year and 141% from the previous quarter to $10.32 billion. This year-over-year and sequential rise was mainly driven by the growing demand for generative AI and large language models using GPUs based on NVIDIA Hopper and Ampere architectures. The strong demand for its chips from large cloud service and consumer internet companies aided the segment’s top-line growth. Our estimate for this end-market’s second-quarter revenue was pegged at $8.02 billion.
Professional Visualization revenues (2.8% of revenues) decreased 24% year over year but increased 28% sequentially to $379 million. The increased demand for laptop workstation GPUs led to the segment’s sequential revenue growth. Our estimate for Professional Visualization end-market’s second-quarter revenue was pegged at $298.6 million.
Automotive sales (1.9% of revenues) in the reported quarter totaled $253 million, up 15% on a year-over-year basis but down 15% sequentially. The year-over-year rise was mainly driven by the ramp-up of self-driving platforms based on NVIDIA DRIVE Orin SoC by several new energy vehicle makers. Meanwhile, the sequential decline was due to lower overall automotive demand, particularly in China. Our estimate for this end-market’s second-quarter revenue was pegged at $308.2 million.
OEM and Other revenues (0.5% of revenues) plunged 53% year over year and 14% sequentially to $66 million. Our second-quarter revenue estimate for this end-market was pegged at $77.7 million.
NVIDIA’s non-GAAP gross margin increased to 71.2% from 45.9% in the year-ago quarter and 66.8% from the previous quarter, mainly driven by higher Data Center sales.
Non-GAAP operating expenses increased 5% year over year as well as sequentially to $1.84 billion. The increase was due to higher compensations and related benefits. However, as a percentage of total revenue, non-GAAP operating expenses declined to 13.6% from 26.1% in the year-ago quarter and 24.3% in the previous quarter.
The non-GAAP operating income jumped 487% year over year and 155% sequentially to $7.78 billion, primarily driven by higher revenues, along with an improved gross margin and lower operating expenses as a percentage of sales.
Balance Sheet and Cash Flow
As of Jul 30, 2023, NVDA’s cash, cash equivalents and marketable securities were $16.02 billion, up from $13.30 billion as of Apr 30, 2023. As of Jul 30, 2023, the total long-term debt was $8.46 billion, down from $9.70 billion at the end of the first quarter.
NVIDIA generated $6.35 billion in operating cash flow, up from the year-ago quarter’s $1.27 billion and the previous quarter’s $2.91 billion.
The free cash flow was an inflow of $6.05 billion compared with the year-ago quarter’s $824 million and the previous quarter’s outflow of $2.64 billion.
In the second quarter, the company returned $99 million to shareholders through dividend payouts and repurchased stocks worth $3.07 billion. During the first half of fiscal 2024, the company paid out $199 million in dividends and bought back stocks worth $3.07 billion.
At the end of the quarter, it had a remaining share-repurchase authorization of approximately $3.95 billion through December 2023. Additionally, the company’s board approved a new share repurchase authorization worth $25 billion, which has no expiration time.
NVIDIA announced a quarterly cash dividend of 4 cents per share, payable on Sep 28, 2023, to shareholders of record on Sep 7, 2023.
For the third quarter of fiscal 2024, NVIDIA anticipates revenues of $16 billion (+/-2%).
The GAAP and non-GAAP gross margins are projected at 71.5% and 72.5%, respectively (+/-50 bps). GAAP and non-GAAP operating expenses are estimated at $2.95 billion and $2 billion, respectively.
GAAP and non-GAAP other income and expenses, excluding gains and losses from non-affiliated investments, are anticipated at approximately $100 million.
The GAAP and non-GAAP tax rate for the quarter is estimated at 14.5% (+/- 1%).
During the first-quarter earnings results, the company had estimated to make capital expenditures between $1.10 billion and $1.30 billion during fiscal 2024, including principal payments on property and equipment.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
The consensus estimate has shifted 48.31% due to these changes.
Currently, Nvidia has a great Growth Score of A, a grade with the same score on the momentum front. 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Nvidia has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.