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Earnings preview: Will Nvidia continue its rebound amid the third quarter earnings?

Nvidia is to report its third-quarter earnings after the US markets close on 16 November. The company’s shares fell by about 68% to the year-low in October from its November high and rebounded by approximately 54% since then following the broad markets’ comeback. While the company faces growth hurdles of weakened PC demands and Biden’s administration’s chip export ban to China, its data centre and gaming income will be still a focus for the upcoming earnings result. But since all the negatives seem to have been already priced in, whether the company can beat the earnings expectations will be the main driver of the immediate shares’ price reaction.

A decline in its revenue growth is expected

According to Wall Street’s estimate, the company’s earnings per share is 71 cents, and the revenue is $5.8 billion in the third quarter. This will be also translated to a 42% drop in profit year on year and a 22% down in its revenue from a year ago. The company’s guidance for the third-quarter revenue is $5.9 billion, which was announced before the Biden administration’s semiconductor export ban to China.

Nvidia’s data centre sales improved slightly in the second quarter, up 61% year on year, to $3.8 billion. The segment will be still the focus of its third-quarter earnings after US officials told it to stop exporting its two top computing chips, A100 and H100, to China, where the company could have lost $400 million in sales. But earlier this month, Nvidia announced that it had begun producing a processor, A800 GPU for China, applying the new rules aiming to limit China’s ability to advance its AI computing. But this will not resolve the issue that the chipmaker’s potential loss in China’s sales in the third quarter, though positive guidance may still support an upside momentum of its shares.

The second largest segment that contributes to Nvidia’s revenue is its gaming business, whose revenue fell 33% annually in the second quarter to $2.04 billion, due to weakened demands in primarily graphics cards for PCs. Cryptocurrency’s collapse mainly contributed to the decline in demand, which makes it unable to accurately estimate the negative effect. The company’s CFO Kress said, “We are unable to accurately quantify the extent to which reduced cryptocurrency mining contributed to the decline in Gaming demand”. 

Please watch the above video for technical analysis of Nvidia's shares


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