Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

All Eyes on Nvidia (NVDA) Stock Ahead of Fiscal Q1 Earnings


Nvidia (NVDA) is expected to release first-quarter earnings for FY 2020 this evenings, as Wall Street sees headwinds hamper earnings growth, with revenue expected to fall more than 30%, while EPS is expected to plunge 61.5% (compared to this time last year).

As a refresh, last quarter the chip giant reported that revenue fell 24%, while EPS nosedived 48%, as Nvidia was navigating through a rough downturn that affected the entire industry. However, NVDA stock is up 21% year-to-date as investors already knew the company’s headline numbers were going to be disappointing, while expectations for the future has surged.

Nonetheless, Susquehanna analyst Christopher Rolland remains bullish on the NVDA stock heading into the print, maintaining a Positive rating (i.e ‘buy’) and $215 price target. (To watch Rolland’s track record, click here)

A big struggle for Nvidia is the “crypto-hangover,” which has had an outsized impact on its gaming segment. While GPUs were popular buys for customers mining cryptocurrency, the plummet of crypto prices led to weakened demand for GPUs, contributing to lower selling prices and revenue. But Rolland expects “management’s narrative to focus on a return to normalcy post the ‘crypto-hangover,’ as we believe GPU inventory levels are approaching reasonable levels…” which will help stabilize price and, eventually turn to revenue growth.

Rolland is not as optimistic on Nvidia’s data center segment, however. The analyst says this segment “may be the biggest risk,” citing Intel’s latest note that said “demand pressure is particularly evident in our data center business, where we are seeing a continuing inventory correction in enterprise and comms and capacity digestion among cloud service providers.” Wall Street expects revenue in this segment to rise since last year, but to decline from last quarter.

Like many bullish on Nvidia, Rolland is looking long-term. The analyst says he believes “the near-term could be challenged for NVIDIA,” but reiterates his rating “as growth should resume after this period of tough compares.”

One of the key features of its long-term strategy is in self-driving car technology. The company is a leader in autonomous technology, developing the processor chips necessary for these cars to function. Until recently, the company’s products were used in Tesla vehicles, but the automaker recently announced it would discontinue using Nvidia chips, opting to manufacturer by itself. Nevertheless,  some see Nvidia’s loss as a gain; with Tesla more aggressively pursuing self-driving cars, this may push other car companies use Nvidia technology faster, as a way to more quickly and better compete with Tesla.

All in all, while the impending earnings are not expected to be strong, the company continues to be a leader in the industry, which is slowly coming out of its downturn. TipRanks analysis of 27 analyst ratings on Nvidia shows a Moderate Buy consensus, with 17 analysts recommending Buy, eight recommending Hold and two Selling. The average price target is $188.75, representing a 18% upside to current levels. (See NVDA’s price targets and analyst ratings on TipRanks)

 

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