Nvidia (NVDA - Free Report) shares have surged 60% in the last six months to crush the semiconductor market’s 30% average. The GPU powerhouse has gone on this run despite the fact that its sales have fallen in the trailing four quarters, as Wall Street and analysts see a turn around on the horizon.
Now investors need to understand if Nvidia stock looks poised to continue its climb, with the chip company set to report its fourth-quarter fiscal 2020 results on Thursday, February 13.
Nvidia is a GPU firm that will continue to play its part in the ever-growing global gaming industry that is projected to expand from $151 billion in 2019 to $196 billion by 2022. Gaming accounted for 55% of NVDA’s Q3 sales.
The company has also diversified its portfolio, with its data center unit making up 24% of revenue last quarter. “We extended our reach beyond the cloud, to the edge, where GPU-accelerated 5G, AI and IoT will revolutionize the world’s largest industries,” CEO Jensen Huang said in prepared Q3 remarks. “We see strong data center growth ahead, driven by the rise of conversational AI and inference.”
Even though the company has expanded its reach in recent years, NVDA couldn’t escape the industry-wide downturn in 2019. Nvidia’s revenue is down roughly 15% in the trailing 12 months, with quarterly sales down in four straight quarters.
With that said, the declines come against hard-to-compare periods of outsized expansion. And NVDA’s sales dipped only 5% last quarter, compared to 31% in Q1 2020.
Investors should also note that Nvidia announced last March that is would acquire Mellanox for $6.9 billion. The deal, which will be by far its largest, aims to improve its position in the cloud computing market. However, the acquisition still awaits more regulatory approvals and NVDA executives last said they believe the “closing will likely occur in the early part of calendar 2020.”
Given the historically cyclical nature of the semiconductor market, it’s poised for a comeback and it looks set to help fuel the continued technological revolution for the foreseeable future. Recent quarterly results from industry powers Samsung (SSNLF - Free Report) , Intel (INTC - Free Report) , and Taiwan Semiconductor Manufacturing Co. (TSM - Free Report) , which included improved outlooks, are also promising.
The semiconductor market is coming off one of its worst years since the early 2000s, with overall sales down 12% in 2019, according to the Semiconductor Industry Association. Despite the decline, semiconductor stocks thrived last year, driven by the likes of AMD (AMD - Free Report) and other high-flyers.
The divergence between price movement and performance can be attributed to the combination of a 2018 chip selloff that devalued stocks and Wall Street’s expectations for a return to growth.
The nearby chart shows just how far NVDA stock fell in the last quarter of 2018. Since the end of 2018, shares of Nvidia have soared roughly 100% to outpace its industry’s 63% average climb and the S&P 500’s 41%. Despite the climb, NVDA stock still have roughly 10% more room to run before it hits pre-2018 selloff highs of around $281 a share.
Our Zacks estimates call for the company’s adjusted Q4 FY20 earnings to skyrocket 108% from the year-ago period to $1.66 per share. This bottom-line expansion is expected to be helped along by 34.2% revenue growth that would see it hit $2.96 billion.
The company’s fiscal year sales and earnings are still expected to slip, but the comeback appears to be on, with Q1 2021’s EPS figure projected to jump 72% on 28% revenue growth.
Then, Nvidia’s adjusted full-year fiscal 2021 earnings are projected to jump 30.5% on 19.4% higher sales that would see it reach $12.86 billion—which would easily top 2019’s $11.71 billion.
Nvidia has a strong history of quarterly earnings beats, which includes outpacing our bottom-line estimates by an average of 9% over the trailing four periods. NVDA is currently a Zacks Rank #3 (Hold), given its lack of recent earnings revisions.
Nvidia stock might keep on climbing following its Q4 earnings release if its guidance is able to impress investors. However, post-earnings drops are always in the cards.
In the end, even if Nvidia underwhelms, the stock appears ready to run over the long haul.
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