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NVIDIA's Gaming Segment to Gain From Higher GPU Adoption

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All eyes will be on NVIDIA Corporation (NVDA - Free Report) this week as investors continue to expect an overwhelming quarterly report from the company’s fourth-quarter fiscal 2018 results. For the last two years, this graphic chipmaker has impressed investors with its stellar performance, wherein the company’s quarterly revenues have been advancing at a rate more than 50%, earnings have tripled and shares have displayed more than six-fold growth, consequently.

Although new markets, including datacenter, autonomous vehicle and cryptocurrency will continue to record increase in revenue contribution, the company’s gaming business remains the core segment on which its overall growth depends. Notably, the segment has contributed 59% to the third-quarter fiscal 2018 revenues and registered year-over-year growth of 25.5%.

Per the Zacks Consensus Estimate, this segment is likely to witness year-over-year growth of 16.5% and reach $1.57 billion in the to-be-reported quarter.

NVIDIA Corporation Price, Consensus and EPS Surprise

Pascal GPUs Driving Segment’s Growth

The year-over-year growth expectation is mainly driven by the strong adoption of NVIDIA’s Pascal architecture-based graphics processing units (GPUs).

For a thrilling gaming experience, one needs better visualization and speed, and NVIDIA has what gamers want, with its strong portfolio of Pascal architecture-based GPUs, which is considered the best by market experts. As gaming enthusiasts always intend to play games at the best graphic settings, they usually upgrade their PCs with more advanced GPUs.

NVIDIA has been able to tap this opportunity by continuously rolling out more advanced GPUs, including GTX 1080, GTX 1070 and Titan X, over the past year. This move has paid well as highlighted by the impressive year-over-year growth in the segment’s revenues over the last four-five quarters.

The latest monthly report of Steam also depicts strong adoption of NVIDIA’s GPUs. Per the report, NVIDIA’s GPUs have captured a much larger market share during the period between November 2017 and January 2018, when compared with the preceding quarter.

Thus, this indicates that strong adoption of the company’s graphic cards continued into the fourth quarter as well, the benefit of which will certainly reflect in its results.

Click here to know how the company’s overall Q4 performance is expected to be.

Tough Y/Y Comparison & Competition Might Impede Growth

It should be noted that the growth rate have been slowing down since the fiscal third quarter, when compared with the previous four quarters. The company has registered approximately 50% year-over-year increase during this period, while in the third quarter of fiscal 2018 the growth rate slowed down to around 25%. We believe this is so because of tough year-over-year comparisons and the to-be-reported quarter is likely to see the impact of the same too.

Apart from this, increasing competition from Advanced Micro Devices (AMD - Free Report) might also hurt the fiscal fourth-quarter top-line performance. Notably, with not much remarkable presence in the high-end graphic-chip market till July 2017, Advanced Micro Devices enhanced its footprint by introducing the Vega series of GPUs — Vega 56 and Vega 64 — in August 2017. Therefore, we believe this might had hurt NVIDIA’s market share in the quarter under review, in turn impacting the segment’s top-line performance.

What the Zacks Model Unveils for NVIDIA’s Overall Performance?

Our proven model conclusively shows that NVIDIA is likely to beat earnings estimates this quarter. Per our model, a stock with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold), has higher chance of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. NVIDIA currently carries a Zacks Rank #2 and has an ESP of +6.87%.

Some Other Stocks With Favorable Combination

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Vishay Intertechnology, Inc. (VSH - Free Report) , with an Earnings ESP of +6.19% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Akamai Technologies, Inc. (AKAM - Free Report) , with an Earnings ESP of +2.73% and a Zacks Rank of 3.

 

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