Key things

  • Analysts estimate FY2022 Q2 EPS of $0.50, up from $0.94.
  • Data center revenue is expected to grow at a brisk pace year-over-year, but will slow compared to the past two quarters.
  • Company-wide revenue is expected to grow, but at the slowest pace in 11 quarters.

Nvidia Corp. (NVDA) has seen a rocket increase in profits and sales in the last two years. As the COVID-19 pandemic has moved work and play into the home, demand for the company’s products has skyrocketed. But Nvidia is now facing a dramatic slowdown in growth as well as regulatory issues. The company recently agreed to pay a $5.5 million fine to federal securities regulators over allegations that Nvidia did not adequately disclose cryptocurrency mining revenue during two quarters of 2018.

Investors will be watching to see how Nvidia handles these challenges when the company reports Q2 fiscal 2023 earnings on August 24, 2022. Nvidia’s last fiscal year (FY) ended on January 30, 2022. Analysts expect profit per share (EPS) to decline year-over-year (YOY) for the second quarter in a row, with sales growing at the slowest pace in more than two years.

Investors will also focus on Nvidia’s data center revenue, a key metric for sales generated by the company’s fast-growing segment of the business. Nvidia makes chips used by data centers. Demand for data center services has increased during the pandemic, prompting an increase in demand for Nvidia chips. Analysts forecast the company’s data center revenue to grow significantly year-over-year in the 2nd quarter of fiscal 2023, but at a slower pace than the past two quarters.

Forecasts also suggest that the company’s annual data center revenue for fiscal 2023 will exceed its annual gaming revenue for the first time. It should be noted that the acquisition of Mellanox Technologies Ltd. by Nvidia, completed in 2020, sharply boosted Nvidia’s data center revenue.

Nvidia shares saw significant gains in October and November 2021, leading up to the company’s third quarter fiscal 2022 earnings release in mid-November. The stock gradually gave up most of those gains through March 2022, before briefly rising again later that month. From March to July of this year, Nvidia’s stock fell sharply, lagging the market for the first time in many months. In the past two months, the stock has seen a modest rise. As of August 23rd, Nvidia stock provided an annualized total return of -21.3%, well behind the S&P 500’s return of -7.6%.

Source: TradingView.

Nvidia Revenue History

Nvidia’s quarterly EPS performance has historically been mixed. From the fourth quarter of fiscal 2019 to the third quarter of fiscal 2020, Nvidia posted five consecutive quarters of year-over-year EPS declines. However, beginning in the 4th quarter of fiscal 2020, this trend reversed sharply, with quarterly earnings per share increasing year-over-year for nine consecutive quarters through the fourth quarter of fiscal 2022. During this period, earnings per share in four of those nine quarters year-over-year exceeded doubled. However, in the last two quarters, EPS fell year-on-year. For the 2nd quarter of fiscal 2023, analysts expect a 46.7% decline, the biggest year-over-year decline in three years.

Nvidia also saw a similar trend in revenue, which declined for several quarters year over year in fiscal 2019 and fiscal 2020. Since then, however, sales have grown year-on-year for 10 quarters up to 1. . Growth has remained strong, but has slowed significantly in the past few quarters. Revenue is expected to rise 11.1% for the second quarter of fiscal 2023, the smallest gain in 11 quarters.

Nvidia key statistics
Estimate for Q2 FY2023 2nd quarter of fiscal year 2022 2nd quarter of fiscal year 2021
Earnings per share ($) 0.50 0.94 0.25
Sales ($B) 7.2 6.5 3.9
Data Center Revenue ($B) 3.9 2.4 1.8

Source: Visible Alpha

A key metric

As mentioned above, investors will also focus on Nvidia’s data center revenue. Nvidia has traditionally specialized in the production of chips for the gaming and graphics industries and is a pioneer in the development of graphics processing units (GPUs). The robust computing power used by GPUs to power video games and graphics software also turns out to be well-suited to technologies like AI and machine learning. Both of these technologies are increasingly important to the rapidly growing data center market. The demand for remote computing power increased substantially during the pandemic as more people started working from home and businesses were forced to move some operations online.

Investors will be watching closely for signs that Nvidia’s big gains in data center revenue may have been solely linked to the pandemic and therefore may not be sustainable. Some trends suggest this may be the case: data center revenue grew at its fastest pace in Q2 and Q3 of fiscal 2021 at the height of the pandemic, and has been slowing since then. A promising sign, however, is that data center revenue continued to grow at a faster rate than that of Nvidia’s core gaming business, which may reflect a real shift in overall demand for Nvidia’s products. For 2Q2023, analysts forecast quarterly data center revenue to grow 64.7% YOY. That’s nearly double the pace of the same quarter a year earlier, though a slightly slower pace than the previous two quarters.

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