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3 Key Estimates Ahead of Nvidia's Q4 Report

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Shares of Nvidia (NVDA - Free Report) gained nearly 3% in morning trading Wednesday, just one day before the company is scheduled to release its fiscal 2018 fourth-quarter earnings report. The Wall Street darling was hit hard by the recent market-wide sell-off, but the stock is now almost fully recovered—and investors can be sure that the company’s report will attract significant attention.

Nvidia has quickly moved to the forefront of the global investing scene over the past two years, largely due to the company’s focus on innovative technology. The Santa Clara, California-based firm manufactures graphics processing units (GPU) and system on a chip units (SoCs) that are considered the top of the line in their respective industries.

Nvidia’s traditional business focuses on delivering GPUs to the gaming market and SoCs to the mobile computing market. But over the past few years, its technology has exploded in popularity throughout several budding new industries and is now used in “smart” vehicles, datacenters, cryptocurrency mining, artificial intelligence, and autonomous driving.

On the back of growth in these new markets and excitement for what these industries could bring in the future, Nvidia shares have skyrocketed more than 750% over the past two years, including a strong 90% climb over the past 52 weeks.

But this share price explosion has also ushered in ludicrous expectations for the company, so the pressure will be on Nvidia to deliver another solid quarterly report tomorrow. Based on our current consensus estimates, we expect management to report adjusted earnings of $1.16 per share and total revenues of $2.67 billion.

These results would represent year-over-year growth rates of 17.2% and 22.8%, respectively. That growth is a bit slower than we have grown to expect from Nvidia, but the company is starting to face tougher prior-year comparisons, which should force investors to adjust a bit.

With that said, it is entirely possible that Wall Street hones in on Nvidia’s performance in specific key businesses, as opposed to its overall results. This could be a more effective method for judging the company’s position right now.

To prepare for this, we can turn to our exclusive non-financial metrics consensus estimate file. The Zacks Consensus NFM file contains detailed estimate data for business segment metrics and non-financial metrics reported by companies. The data is acquired from digest and contributing broker models and includes the independent research of expert stock market analysts.

Investors will rightfully be interested in several of Nvidia’s exciting growth catalysts, but it is also important to track how the company’s core video gaming business is holding up. Our consensus estimate file is calling for Nvidia to report Gaming revenues of $1.581 billion, up about 17.3% from the year-ago period. However, Nvidia notched 25.5% growth in Gaming revenues last quarter, so investors will hope that the company’s holiday shopping season was stronger than analysts are expecting.

One division that will likely grow in magnitude over the next few years is the company’s Automotive segment. This is still a relatively small revenue driver, but as the demand for AI-powered autonomous driving grows, Nvidia should stand to benefit.

For the fourth quarter, our consensus estimates are calling for Nvidia to report Automotive revenues of $150 million, which would represent year-over-year growth of about 12.2%. Last quarter, Nvidia posted segment revenues of $144 million, up 13.4%, so it looks like growth rates are expected to pick up.

Finally, investors are going to want to pay special attention to Nvidia’s Datacenter business, which has been one of its fastest-growing units in recent months. Last quarter, Nvidia reported Datacenter revenues of $501 million, up 108.8% from the year-ago period.

Based on our consensus estimates, we expect to see Nvidia post Datacenter revenues of $549 million for Q4. That would represent year-over-year growth of 85.5% from the $296 million that was witnessed last year.

85% growth is certainly nothing to scoff at, but investors have grown accustom to triple-digit Datacenter growth over the past few quarters. This could be a key catalyst for the stock if Nvidia can beat expectations.

Make sure to check back here for our full analysis once Nvidia reports tomorrow!

Want more analysis from this author? Make sure to follow @Ryan_McQueeneyon Twitter!

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