Nvidia’s [NVDA] share price might be soaring, but revenues have been in decline for four straight quarters. Will Q4 earnings results see the semiconductor giant return to growth mode?
Nvidia's share price has soared over 77% in the past 12 months, dominating rivals like Intel and AMD. This comes despite 2019 being a tough year for the semiconductor industry. Overall sales were down 12%, according to the Semiconductor Industry Association. Nvidia, in particular, saw four straight quarters of declining revenue.
77% Nvidia's share price rise over past 12 months
Nvidia's share price rise over past 12 months
But with the company’s Q4 earnings numbers out this week, is it about to return to growth mode?
When does Nvidia report Q4 earnings?
What to look out for in Nvidia’s Q4 earnings?
A return to growth
Analysts expect Nvidia to return to growth mode this quarter, with strength coming from both its gaming and data-centre businesses.
Data-centres play an increasingly large part of Nvidia's revenue stream. This side of the business represented around 24% of revenue in Q3.
During the Q3 earnings call, CEO Jensen Huang said that the company expected "strong data-center growth". Powering this would be the growing trend for GPU accelerated technology like AI and 5G.
This year Nvidia hopes to expand its high margin data-centre business through the purchase of Mellanox Technologies. The deal is still awaiting regulatory approval and any word on whether it’s on track to close in the first half of this year will be closely watched.
With both Intel and AMD reporting strong data-centre sales this earnings season, Nvidia will be hoping to do the same when it reports this week.
Yet, Instinet analyst David Wong notes beating last year's data-centre numbers shouldn't be hard. The real challenge will come topping numbers later in the year:
“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.”
“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” - Instinet analyst David Wong
Nvidia gaming streaming service
Nvidia's share price rose 3% on news that it was launching a cloud video game service. Named GeForce Now, the service allows joypad warriors to stream games from the likes of Steam.
Starting at $4.99 a month, the service is cheaper than rival Google's Stadia. There's also no initial outlay for a controller. Instead, gamers stream titles through their PCs or mobile devices.
The move into streaming makes sense for Nvidia. The company derives the majority of revenue from chipsets that power triple-A games. With the growth of e-gaming and streaming, fostering demand won't hurt the share price. While revenue from this initiative won’t be included in the Q4 results, traders will be watching out for any news on the service during the earnings call.
What to expect in Nvidia's Q4 earnings
Wall Street is expecting earnings to come in at $1.66 per share, up from the $0.8 seen in the same quarter last year. Revenue is also expected to gain, coming in at $2.96 billion - a 34% jump on the previous quarter.
According to MarketWatch, analysts expect gaming revenue to come in at $1.52 billion - a 59% jump. While data-center business revenues look set at $829.2 million, up 22%.
|PE ratio (TTM)||68.60|
|Quarterly Revenue Growth (YoY)||-5.20%|
Nvidia share price vitals, Yahoo Finance, 12 February 2020
Time to buy Nvidia?
Nvidia has form beating analyst expectations. Over the past four quarters, the GPU giant has topped Zacks’ bottom-line estimates by an average of 9%.
Of the 38 analysts tracking the share price on Yahoo Finance, 21 either rate it a Strong Buy or a Buy. Yet, an average price target of $248.35 would represent a 1.2% downside. After last year's gains, some traders might think the stock is due a correction.
Among the bears, Instinet analyst David Wong has a $147 share price target on the stock. Hitting this would represent a huge 41% downside. On the bulls’ side, December saw Wells Fargo’s Aaron Rakers name Nvidia as his top semiconductor stock for 2020. Maintaining his Overweight position on the stock, Rakers lifted his share price target from $240 to $270 - a 7.3% upside on the current share price.