NVIDIA (NVDA) Q4 Earnings: What's in Store for the Stock?


NVIDIA Corporation NVDA is scheduled to report fourth-quarter fiscal 2019 results on Feb 14.

In the trailing four reported quarters, the company's earnings surpassed the Zacks Consensus Estimate thrice and missed it once, the average positive surprise being 18.6%.

Having impressed investors with a stellar performance in the last couple of years, the company has been witnessing a downward trend since last October. Further, the chip-maker has remained tremendously stressed ever since it came up with lower-than-expected results in the last reported quarter.

Notably, the company's non-GAAP earnings per share of $1.84 missed the Zacks Consensus Estimate of $1.91. Although the figure surged 38% from the year-ago period, it declined 5% sequentially.

Revenues improved 21% year over year to $3.18 billion. However, the top line lagged the Zacks Consensus Estimate of $3.24 billion and was also lower than the management's projection of $3.25 billion (+/-2%). Although growth across Datacenter, Professional Visualization and Automotive segments was positive, weakness in the Gaming segment was a spoiler.

Estimates and Guidance for Q4

NVIDIA recently trimmed its fourth-quarter fiscal 2019 guidance. The company cited softness in the gaming and data center spaces to be the primary reason behind the view cut. The company warned "deteriorating macroeconomic conditions, particularly in China" to be a major headwind.

The company's previous revenue estimate of $2.7 billion (+/- 2%) was reduced to $2.2 billion (+/- 2%), indicating a fall of 24% year over year and a 31% plunge sequentially.

The Zacks Consensus Estimate is currently pegged at $2.37 billion, reflecting a year-over-year drop of almost 18.6%.

Moreover, the non-GAAP gross margin is now expected to be 56% compared with the earlier outlook of 62.5%. Margins are anticipated to be affected by around $120 million in charges for excess DRAM and other components due to the current market conditions besides the updated revenue expectation.

Further, the consensus mark for earnings currently stands at 75 cents, down 45.3% over the past 30 days.

NVIDIA Corporation Price and EPS Surprise

NVIDIA Corporation Price and EPS Surprise | NVIDIA Corporation Quote

Factors at Play

On the last earnings call, NVIDIA initiated a tepid outlook for the fiscal fourth quarter, mirroring its suspension of mid-range Pascal GPU shipments in order to stabilize the channel-inventory levels following the end of the cryptocurrency mining boom, which dwindled demand for its GPUs.

Although the channel inventory cutback has been in line with management's expectations, sales in the soon-to-be-reported quarter are expected to be lower due to sluggish consumer demand for gaming GPUs on account of sharp deceleration in China and waning Turing sales.

Additionally, high price of its high-end RTX GPUs has compelled consumers to delay their purchases as they wait for reasonable prices and ray tracing technology to become more widely available.

The Zacks Consensus Estimate for GPU revenues is pegged at $2.4 billion, representing a dip of 2.4% from the year-earlier quarter.

Moreover, due to the normal seasonal build cycle, the company anticipates a decrease in sales of Tegra chips for game consoles. The Zacks Consensus Estimate for Tegra processor revenues stands at $362 million, depicting a decline of nearly 20% from the prior-year quarter.

Furthermore, NVIDIA mentioned that many of its data center deals were not closed in the last month of the quarter as economic uncertainties made customers increasingly cautious. This makes us highly apprehensive as the company generates nearly one-third of its revenues from this segment.

However, NVIDIA's confidence in its strategies and growth opportunities in ray-traced gaming, rendering, high-performance computing, AI and self-driving cars, is something to look forward to.

What Our Model Says

Our proven Zacks model conclusively shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has significantly high chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

NVIDIA currently has a Zacks Rank #5, which decreases the predictive power of ESP, and an Earnings ESP of 0.00%, which further makes surprise prediction difficult. Thus, this combination does not predict a likely eanrings surprise for the stock.

Stocks to Consider

Ameren Corporation AEE has an Earnings ESP of +6.92% and a Zacks Rank of 1. You can see the complete list of today's Zacks #1 Rank stocks here.

GTT Communications, Inc. GTT has an Earnings ESP of +173.53% and a Zacks Rank of 2.

Ciena Corporation CIEN has an Earnings ESP of +1.70% and is a Zacks #2 Ranked player.

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