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NVIDIA (NVDA) Q1 Earnings & Revenues Top, Outlook Strong
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NVIDIA Corp. (NVDA - Free Report) posted first-quarter fiscal 2018 adjusted earnings (including stock-based compensation but excluding other one-time items) on a proportionate tax basis of 82 cents per share, beating the Zacks Consensus Estimate of 66 cents. Also, earnings increased from 39 cents reported in the year-ago quarter.
The stock has been clocking solid returns for the last one year and has gained 225.01%, outperforming the Zacks categorized Semiconductor-General industry’s return of just about 44.82%.
Revenues
Revenues not only increased 48.4% year over year to $1.937 billion but also surpassed the Zacks Consensus Estimate of $1.910 billion. The year-over-year increase was primarily attributable to better-than-expected growth across all the platforms, that is, GPUs gaming platform, Professional Visualization, datacenter and Tegra automotive platforms. Also, NVIDIA continued to strengthen in the artificial intelligence (AI) space, which positively impacted the quarter’s revenues.
Revenues from the GPU business increased 45% year over year to $1.56 billion, driven by strength in GeForce GPUs Gaming revenues and datacenter. Revenues from Gaming GPU increased 49% on a year-over-year basis. Revenues from datacenter (including Tesla and Grid) came in at $409 million, which more than tripled on a year-over-year basis.
Tegra processor revenues came in at $332 million, which more than doubled on a year-over-year basis. The increase was primarily due to better-than-expected growth in Tegra development services and automotive. Automotive revenues for the quarter came in at $140 million, reflecting an increase of 24% year over year, primarily from infotainment modules.
Quarter’s revenues were also positively impacted by 43 million from the Intel (INTC - Free Report) agreement.
Moving to Professional Visualization, revenues from Quadro increased 8% year over year and came in at $255 million. The increase was mainly due to strong demand in real-time rendering tools and mobile workstations.
Margins
NVIDIA’s adjusted gross margin (including stock-based compensation but excluding other one-time items) expanded 106 basis points (bps) from the year-ago quarter to 59.4%. In dollar terms, gross profit came in at $1.150 billion, reflecting an increase of 51.1% from the year-ago quarter, primarily on the back of strength in GeForce GPU gaming platform and a higher revenue base.
Adjusted operating expenses increased 19.9% from the year-ago quarter to $590 million, as the company continued to invest in sales, general and administrative activities and higher research and development expenses. As a percentage of revenues, operating expenses, however, decreased 724 bps from the year-ago quarter to 30.5%.
NVIDIA’s adjusted operating margin was up from 20.6% to 28.9% during the quarter, reflecting growth in its GeForce GTX GPU business and lower operating expenses as a percentage of revenues. In dollar terms, adjusted operating income increased from $269 million to $560 million.
Balance Sheet & Cash Flow
NVIDIA exited the quarter with cash, cash equivalents and marketable securities of $6.206 billion compared with $6.798 billion in the previous quarter. NVIDIA’s total debt (including current portion) was $2.199 billion. Free cash flow in the quarter came in at $229 million, while cash flow from operations was $282 million.
During the quarter, the company paid a cash dividend of $82 million. NVIDIA also announced quarterly dividend of 14 cents per share, payable on Jun 14, 2017.
Guidance
For the second quarter of fiscal 2018, NVIDIA expects revenues of approximately $1.95 billion (+/-2%). The Zacks Consensus Estimate is pegged at $1.893 billion.
Non-GAAP gross margin is expected to be 58.6% (+/-50 bps). Non-GAAP operating expenses are expected to be approximately $530 million. Capital expenditures are expected to be roughly in the range of $55–$65 million. Non-GAAP tax rate is expected to be 17% (+/-1%).
For fiscal 2018, the company expects to return $1.25 billion to its shareholders in the form of cash dividends and share repurchases.
Recent Activities
Nvidia announced its new GeForce GTX 1080 Ti, which it calls “the world's fastest gaming GPU.” The company also introduced its Tesla accelerators that were designed to improve AI in datacenters. The accelerators were added to Google Cloud, IBM Cloud, and more.
Our Take
NVIDIA posted impressive first-quarter fiscal 2018 results and provided encouraging second-quarter revenue guidance. Also, the company registered year-over-year growth on both counts, primarily due to growth across all its four platforms. Also, better-than-expected demand for its gaming chips used in personal computers helped the company post encouraging results.
Moreover, we believe that NVIDIA’s innovative product pipeline and strength in gaming and high-end notebook GPUs keep it well positioned. We also believe that the higher adoption of NVIDIA’s Tegra processors could act as a catalyst, going forward.
On the flip side, the secular decline in the PC market has affected many chip makers. NVIDIA’s dependence on the PC market continues, and therefore is being hurt by adverse conditions. The preliminary data released by Gartner showed that PC shipments in the quarter declined 2.4% year over year to 62.2 million units. The decline marked the 10th straight quarter of year-over-year fall, the longest in the history of the PC industry.
Also, Gartner’s forward-looking statements make us a shade cautious about the prospects of the PC industry. The research firm agreed that the recent surge in DRAM prices and short supply of SSD will lead to an increase in PC prices.
Mikako Kitagawa, principal analyst at Gartner, said, "The price hike will further suppress PC demand in the consumer market, discouraging buyers from PC purchases unless it is absolutely necessary. The price hike started affecting the market in 1Q17. This issue will grow into a bigger problem in 2Q17, and we expect it to continue throughout 2017." IDC also predicted that consumer demand will remain under pressure. This makes us slightly cautious about NVIDIA’s near-term performance.
Additionally, competition from the likes of Intel and QUALCOMM Inc. (QCOM - Free Report) remains a near-term headwind.
Computer Sciences has a long-term EPS growth rate of 8%.
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NVIDIA (NVDA) Q1 Earnings & Revenues Top, Outlook Strong
NVIDIA Corp. (NVDA - Free Report) posted first-quarter fiscal 2018 adjusted earnings (including stock-based compensation but excluding other one-time items) on a proportionate tax basis of 82 cents per share, beating the Zacks Consensus Estimate of 66 cents. Also, earnings increased from 39 cents reported in the year-ago quarter.
The stock has been clocking solid returns for the last one year and has gained 225.01%, outperforming the Zacks categorized Semiconductor-General industry’s return of just about 44.82%.
Revenues
Revenues not only increased 48.4% year over year to $1.937 billion but also surpassed the Zacks Consensus Estimate of $1.910 billion. The year-over-year increase was primarily attributable to better-than-expected growth across all the platforms, that is, GPUs gaming platform, Professional Visualization, datacenter and Tegra automotive platforms. Also, NVIDIA continued to strengthen in the artificial intelligence (AI) space, which positively impacted the quarter’s revenues.
Revenues from the GPU business increased 45% year over year to $1.56 billion, driven by strength in GeForce GPUs Gaming revenues and datacenter. Revenues from Gaming GPU increased 49% on a year-over-year basis. Revenues from datacenter (including Tesla and Grid) came in at $409 million, which more than tripled on a year-over-year basis.
Tegra processor revenues came in at $332 million, which more than doubled on a year-over-year basis. The increase was primarily due to better-than-expected growth in Tegra development services and automotive. Automotive revenues for the quarter came in at $140 million, reflecting an increase of 24% year over year, primarily from infotainment modules.
Quarter’s revenues were also positively impacted by 43 million from the Intel (INTC - Free Report) agreement.
Moving to Professional Visualization, revenues from Quadro increased 8% year over year and came in at $255 million. The increase was mainly due to strong demand in real-time rendering tools and mobile workstations.
Margins
NVIDIA’s adjusted gross margin (including stock-based compensation but excluding other one-time items) expanded 106 basis points (bps) from the year-ago quarter to 59.4%. In dollar terms, gross profit came in at $1.150 billion, reflecting an increase of 51.1% from the year-ago quarter, primarily on the back of strength in GeForce GPU gaming platform and a higher revenue base.
Adjusted operating expenses increased 19.9% from the year-ago quarter to $590 million, as the company continued to invest in sales, general and administrative activities and higher research and development expenses. As a percentage of revenues, operating expenses, however, decreased 724 bps from the year-ago quarter to 30.5%.
NVIDIA’s adjusted operating margin was up from 20.6% to 28.9% during the quarter, reflecting growth in its GeForce GTX GPU business and lower operating expenses as a percentage of revenues. In dollar terms, adjusted operating income increased from $269 million to $560 million.
Balance Sheet & Cash Flow
NVIDIA exited the quarter with cash, cash equivalents and marketable securities of $6.206 billion compared with $6.798 billion in the previous quarter. NVIDIA’s total debt (including current portion) was $2.199 billion. Free cash flow in the quarter came in at $229 million, while cash flow from operations was $282 million.
During the quarter, the company paid a cash dividend of $82 million. NVIDIA also announced quarterly dividend of 14 cents per share, payable on Jun 14, 2017.
Guidance
For the second quarter of fiscal 2018, NVIDIA expects revenues of approximately $1.95 billion (+/-2%). The Zacks Consensus Estimate is pegged at $1.893 billion.
Non-GAAP gross margin is expected to be 58.6% (+/-50 bps). Non-GAAP operating expenses are expected to be approximately $530 million. Capital expenditures are expected to be roughly in the range of $55–$65 million. Non-GAAP tax rate is expected to be 17% (+/-1%).
For fiscal 2018, the company expects to return $1.25 billion to its shareholders in the form of cash dividends and share repurchases.
Recent Activities
Nvidia announced its new GeForce GTX 1080 Ti, which it calls “the world's fastest gaming GPU.” The company also introduced its Tesla accelerators that were designed to improve AI in datacenters. The accelerators were added to Google Cloud, IBM Cloud, and more.
Our Take
NVIDIA posted impressive first-quarter fiscal 2018 results and provided encouraging second-quarter revenue guidance. Also, the company registered year-over-year growth on both counts, primarily due to growth across all its four platforms. Also, better-than-expected demand for its gaming chips used in personal computers helped the company post encouraging results.
Moreover, we believe that NVIDIA’s innovative product pipeline and strength in gaming and high-end notebook GPUs keep it well positioned. We also believe that the higher adoption of NVIDIA’s Tegra processors could act as a catalyst, going forward.
On the flip side, the secular decline in the PC market has affected many chip makers. NVIDIA’s dependence on the PC market continues, and therefore is being hurt by adverse conditions. The preliminary data released by Gartner showed that PC shipments in the quarter declined 2.4% year over year to 62.2 million units. The decline marked the 10th straight quarter of year-over-year fall, the longest in the history of the PC industry.
Also, Gartner’s forward-looking statements make us a shade cautious about the prospects of the PC industry. The research firm agreed that the recent surge in DRAM prices and short supply of SSD will lead to an increase in PC prices.
Mikako Kitagawa, principal analyst at Gartner, said, "The price hike will further suppress PC demand in the consumer market, discouraging buyers from PC purchases unless it is absolutely necessary. The price hike started affecting the market in 1Q17. This issue will grow into a bigger problem in 2Q17, and we expect it to continue throughout 2017." IDC also predicted that consumer demand will remain under pressure. This makes us slightly cautious about NVIDIA’s near-term performance.
Additionally, competition from the likes of Intel and QUALCOMM Inc. (QCOM - Free Report) remains a near-term headwind.
Currently, NVIDIA has a Zacks Rank #4 (Sell). A better-ranked stock in the technology sector is Computer Sciences Corporation (DXC - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Computer Sciences has a long-term EPS growth rate of 8%.
Looking for Ideas with Even Greater Upside?
Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more.
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