Nvidia’s [NVDA] share price has been on something of a hot streak over the last year, gaining more than 209% to sit at $462.56 in the 52 weeks to 14 August.
Nvidia’s share price has risen 109.69% year-to-date through 17 August’s close, and is up more than 151% since its mid-March market crash low of $196.31. The stock has also outperformed the PHLX Semiconductor Sector [SOX] index’s 19% rise so far this year.
Nvidia’s share price has been on a winning streak of late, hitting a high of $420.36 on 9 July, This boosted its market cap to $258bn, making it a more valuable company than Intel [INTC] for the first time. Globally, only Samsung  and Apple’s [AAPL] main chip provider, Taiwan Semiconductor Manufacturing Company [TSMC], have bigger market caps.
So, what’s behind Nvidia’s share price outperformance? And how will this be reflected in the company’s upcoming quarterly earnings?
Gaming and data centre revenues props up earnings
While there are question marks around what went wrong for Intel, a lot has gone right for Nvidia’s share price.
Take the company’s first-quarter fiscal 2021 earnings: for the three months to the end of April, the chipmaker posted revenue of $3.08bn, versus Wall Street expectations of $3bn. Revenue jumped 39% compared to $2.22bn a year earlier. Meanwhile, profit climbed 133% year-over-year to $917m, while earnings hit $1.80 per share versus the analysts’ forecast of $1.69.
Nvidia's Q1 2020 revenue - a 39% YoY rise
Such a strong earnings performance was underpinned by significant growth in both its gaming, which accounts for around 43% of total revenue, and data centre segments. The former was up 27% year-over-year at $1.34bn and the latter rose 80% to $1.14bn. The rest of its revenue came from its professional visualisation and automotive segments.
The company is expecting revenue to be $3.65bn, give or take 2%, for the second quarter. If Nvidia meets its own guidance, it would mark a 41% year-over-year increase from last year’s revenue of $2.58bn. Figures like these would make a jump in Nvidia’s share price seem extremely likely.
The battle for data centre market share
What holds the company, and Nvidia’s share price more specifically, in good stead ahead of the second-quarter earnings call is that demand for graphic processing units (GPUs) and data centre capacity rose during lockdown to meet the increased needs of customers brought about by remote working. On top of this, an increasing number of people were taking up gaming as a way to while away the time spent stuck indoors.
On 27 April, Nvidia struck a deal to acquire high-end networks solution provider Mellanox Technologies [MLNX] for $7bn – the bookings from Mellanox will be folded into Nvidia’s total revenue. It is expected to contribute a low-teens percentage of revenue for the three months to the end of July, which may well lead to a spike in Nvidia’s share price.
Nvidia’s investment in its data centre capabilities, coupled with its product development and roll-out of its next-generation Ampere GPU, has given Ambrish Srivastava, BMO Capital analyst, enough optimism to raise his rating for the stock to Outperform. According to MarketWatch, Srivastava raised his target for Nvidia’s share price significantly, from $285 to $425 on 18 May.
“While the central processing unit will always be an important part of the solution, the GPU, and specifically what Nvidia has done with its software architecture, positions the company to be the prime beneficiary as we look over the next five years or so,” he wrote in a note to clients, as reported by The Street.
“While the central processing unit will always be an important part of the solution, the GPU, and specifically what Nvidia has done with its software architecture, positions the company to be the prime beneficiary as we look over the next five years or so” - Ambrish Srivastava, BMO Capital analyst
He added that the Mellanox purchase will help to give it a “formidable presence in the market”. It could even put Nvidia on a path to challenging Intel for its lion’s share of the data centre sector.
Nvidia’s share price could likely get another boost in the near term, as rumours persist around the chipmaker buying Cambridge chip designer Arm from Softbank  for more than $32bn, according to the Financial Times. Arm is responsible for the design of the majority of processors found in nearly every smartphone.
Given that both Nvidia and its main competitors in the chipmaker industry are currently Arm customers, the acquisition would help to cement Nvidia as the king of chips in the US.
According to MarketBeat, there are currently 40 Wall Street ratings for the stock. A majority of 32 rate Nvidia’s share price a Buy, with four advising to Hold the stock, and four to Sell.
|PE ratio (TTM)||91.43|
|Quarterly Revenue Growth (YoY)||38.7%|
Nvidia share price vitals, Yahoo Finance, 18 August 2020