Earnings Outlook: Nvidia earnings: A return to revenue growth expected after a tough year

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After more than a year of quarterly revenue declines, Nvidia Corp. is finally expected to return to growth just before potentially announcing its next round of new products.

Nvidia NVDA, -1.04%  is scheduled to report earnings after the close of markets on Thursday, and revenue is expected to increase for the first time in more than a year. Nvidia’s largest segment, gaming, and the business that has seemed most important to investors in recent years, data-center chips, are expected to drive the growth.

Data-center sales have been one of the most widely watched sectors in the chip industry this earnings season, after a decline in infrastructure sales in 2019 led to doubts about the cloud boom. Earlier in earnings season, Intel Corp. INTC, -1.59%  reported a surprise jump in its data-center sales, while Advanced Micro Devices Inc. AMD, +0.83%  reported that data-center sales were strong even though those results were masked by being lumped together with poor console sales.

Read: The problem with AMD’s data-center business

Reporting after those two rivals means the bar has been raised for Nvidia. Instinet analyst David Wong, who has a hold rating and a $147 price target on Nvidia, expects data-center sales growth to be strong, but only against the “easy” comparisons of last year’s disappointment.

“We continue to think that its GPU products might only address a portion of the data center processor/accelerator market,” Wong said. “We will be interested to see if Nvidia will be able to demonstrate superior year-over-year growth in its data center segment when the comparisons become more difficult, beginning in the October 2020 quarter.”

Nvidia will follow up this earnings report with its annual GTC conference in March, at which new products are expected to be announced. Wells Fargo analyst Aaron Rakers, who has an overweight rating and a $270 price target, told investors to expect a “meaningful” data-center refresh at Nvidia’s GTC conference in March, based on plans for an upgrade to Indiana University’s “Big Red 200” supercomputer.

Rakers said that refresh is notable “as it points to a meaningful NVIDIA data center GPU refresh (7nm Ampere) coming in late-March at NVIDIA’s GTC — new Big Red 200 expected to incorporate NVIDIA’s next-gen GPUs in the summer time frame; pointing to a 70%+ performance increase versus the current-generation V100 GPUs.”

What to expect

Earnings: Of the 31 analysts surveyed by FactSet, Nvidia on average is expected to post adjusted earnings of $1.66 a share, up from 92 cents a share in the year-ago quarter. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $1.72 a share.

Revenue: Wall Street expects Nvidia to return to its first quarterly revenue gain after four straight quarters of declines with revenue of $2.96 billion from Nvidia, according to 32 analysts polled by FactSet. That’s down from the $3.06 billion forecast at the beginning of the quarter, but up from the $2.21 billion reported in the year-ago quarter. Estimize expects revenue of $3.01 billion.

Revenue from gaming, Nvidia’s largest business, is expected to rise 59% to $1.52 billion, while data-center revenue is expected to rise 22% to $829.2 million.

Stock movement: Nvidia shares have gained 22% since the company’s last earnings report in mid-November. In comparison, the S&P 500 index SPX, -0.54% has gained 8%, the tech-heavy Nasdaq Composite Index COMP, -0.54% has grown 13%, and the PHLX Semiconductor Index SOX, -2.37% has increased nearly 11% in that time.

Of the 39 analysts who cover Nvidia, 28 have buy or overweight ratings, nine have hold ratings and two have sell or underweight ratings, with an average price target of $248.94.

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