It has been about a month since the last earnings report for NVIDIA Corporation (NVDA - Free Report) . Shares have added about 5.7% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is NVDA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
NVIDIA Q4 Earnings and Revenues Beat Estimates
Continuing its earnings streak for the 11th straight quarter, NVIDIA reported splendid fourth-quarter fiscal 2018 results, wherein it not only marked a strong year-over-year improvement, but also came way ahead of the Zacks Consensus Estimate. The company's results also beat its estimates on all the fronts.
This California-based graphic chip behemoth posted earnings of $1.72 per share on a non-GAAP basis, up nearly 52% year over year. Non-GAAP earnings also outpaced the Zacks Consensus Estimates of $1.16. The year-over year robust bottom-line performance mainly stemmed from significant revenue growth, along with gross margin and operating margin expansion.
Revenues not only surged 34% year over year to $2.911 billion, but also comfortably surpassed the Zacks Consensus Estimate of $2.669 billion, as well as management’s projection of $2.65 billion (+/-2%). The year-over-year jump is primarily attributable to growth across all the platforms, that is, the GPUs gaming platform, Professional Visualization, datacenter and Tegra automotive platforms. Further, NVIDIA continued to gain strength in the artificial intelligence (AI) space, which proved conducive to quarterly revenue growth.
Revenues from the GPU business jumped 33% year over year to $2.46 billion, driven by strength in GeForce GPUs Gaming revenues and datacenter. Increasing demand for cryptocurrencies stemming from increased adoption of Bitcoin and latest digital currencies like Ethereum also helped lift demand for GPU, consequently contributing to the company’s GPU sales growth. Moreover, the Nintendo Switch which was launched in March 2017, contributed to overall growth.
Tegra processor revenues came in at $450 million, which climbed 75% on a year-over-year basis. The increase was primarily due to better-than-expected growth in Tegra development services.
Revenues from Gaming GPU were up 29% on a year-over-year basis to $1.74 billion. Strong growth was primarily due to demand across all regions and form factors.
The company’s continued focus on introducing fast and innovative products, as well as entering into agreements with leading PC game makers, has been driving its Gaming GPU business. During the reported quarter, NVIDIA unveiled a GPU, Titan Xp. We believe this will take gaming experience to a new level. Hence, the launch of this product will enable NVIDIA to increase its customer base and help garner additional revenues.
The company, during the CES 2018 event, rolled out a hardware “big format gaming displays, or BFGDs” in collaboration with HP Inc., Asus and Acer, to bring in enormous gaming experience on a very big screen — 65 inches.
According to the company, BFGDs put together “a high-end 65-inch, 4K 120Hz HDR display with NVIDIA G-SYNC technology together with NVIDIA SHIELD, the world’s most advanced streaming device.” NVIDIA says that combination of these technologies will give users a "buttery-smooth gaming experience" as well as enable them to stream their favorite streaming applications such as Netflix, Gaming Video, YouTube and Hulu.
Additionally, revenues from datacenter more than doubled when compared with the year-ago quarter and came in at $606 million, mainly fueled by strong adoption of artificial intelligence (AI), deep learning, high-performance computing (HPC), and strong traction of the new Volta architecture.
The company’s Volta-based V100 accelerator was the most significant launch. The Volta V100 GPU provides 10 times more deep learning power to the company’s older predecessor, Pascal generation GPUs. NVIDIA’s Volta GPUs has seen strong adoption across all over the world over the past year with companies including Alibaba, Baidu, Tencent, Amazon, Facebook, Alphabet and Microsoft in the list.
Demand for NVIDIA’s AI supercomputer also remained high as more organizations are keen on building AI-enabled applications. The company stated that the U.S. Department of Energy's Summit System and Japan’s ABCI system have agreed to use NVIDIA’s GPUs in building AI supercomputers.
Growing traction of AI among other vertical industries like “transportation, energy, manufacturing, smart cities, and healthcare” is also benefiting NVIDIA. During the last quarter, the company secured several contracts from companies such as GE Health, Nuance and Baker Hughes for implementing AI. Notably more than 1,200 companies are already using this inference platform, including Amazon, Microsoft, Facebook, Google, Alibaba, Baidu, Hi Vision and Tencent.
Automotive revenues for the reported quarter came in at $132 million, reflecting an increase of 3% year over year. The company continued by entering into new partnerships based on its DRIVE PX AI platform.
At CES 2018, the company announced several contracts in the self-driving space with companies like Uber, Volkswagen, Aurora, Baidu and ZF Friedrichshafen AG. During the fiscal fourth-quarter conference call, NVIDIA noted that more than “320 companies and research institutions” are using its Drive platform, which represents 50% year-over-year growth.
Moving to Professional Visualization, revenues from Quadro increased 13% year over year and came in at $254 million. The increase was mainly due to elevated demand in real-time rendering tools like AR and VR.
NVIDIA’s non-GAAP gross margin expanded 190 basis points (bps) from the year-ago quarter to 62.1%, which exceeded the management’s guidance range of 60% (+/-50 bps).
In dollar terms, non-GAAP gross profit came in at $1.809 billion, reflecting an increase of 38% from the year-ago quarter, primarily on the back of strength in its value-added platforms.
Non-GAAP operating expenses flared up nearly 22% from the year-ago quarter to $607 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 approximately $600 million. As a percentage of revenues, operating expenses, however, decreased to 20.9% from 22.9% witnessed in the year-ago quarter.
Consequently, NVIDIA’s non-GAAP operating margin was up from 37.2% to 41.3% during the reported quarter. In dollar terms, non-GAAP operating income jumped from $809 million to $1.202 billion.
Non-GAAP net income during the quarter came in at $1.081 billion as compared with $704 million reported in the year-ago quarter.
Balance Sheet & Cash Flow
NVIDIA exited the fiscal fourth quarter with cash, cash equivalents and marketable securities of $7.108 billion compared with $6.320 billion in the previous quarter. NVIDIA’s long-term debt was $1.985 billion. Free cash flow during the fiscal came in at $2.909 billion, while cash flow from operations was $3.50 billion. During the fiscal, the company returned approximately $1.25 billion in the form of share repurchases and dividend payments.
The company initiated its outlook for first-quarter fiscal 2019. For the quarter, NVIDIA expects revenues of approximately $2.90 billion (+/-2%), which is much higher than the Zacks Consensus Estimate of $2.44 billion.
Non-GAAP gross margin is projected to be 63% (+/-50 bps). Non-GAAP operating expenses are expected to be approximately $645 million. GAAP and non-GAAP tax rates, both are projected at 12% (+/-1%).
For fiscal 2019, the company expects returning $1.25 billion to its shareholders in the form of cash dividends and share repurchases.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been ten revisions higher for the current quarter In the past month, consensus estimates have shifted by 52.5% due to these changes.
At this time, NVDA has a nice Growth Score of B, however, its Momentum is doing a bit better with an A. The stock was allocated a grade of F on the value side, putting it in the bottom 20% 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.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise NVDA has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.