Why Is Nvidia (NVDA) Down 9.1% Since Last Earnings Report?

·6 min read

A month has gone by since the last earnings report for Nvidia (NVDA). Shares have lost about 9.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nvidia due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

NVIDIA Q1 Earnings Beat Estimates, Revenues Surge Y/Y

NVIDIA kick-started fiscal 2023 on a strong note by reporting better-than-expected first-quarter results. For the first quarter, NVIDIA reported non-GAAP earnings of $1.36 per share, which beat the Zacks Consensus Estimate by 4.6%. The reported figure jumped 49% year over year and 3% sequentially.

Revenues of $8.29 billion beat the consensus mark by 2.1% and surged 46% year over year. The top line climbed 8% on a quarter-over-quarter basis.

The year-over-year top-line growth was driven by higher sales of GeForce Graphic Processing Units (GPUs). NVDA continues to benefit from the strong demand for its Ampere architecture products.

Segment Details

NVIDIA reports revenues under two segments – Graphics and Compute & Networking.

Graphics includes GeForce GPUs for gaming and personal computers, the GeForce NOW game-streaming service and related infrastructure, along with solutions for gaming platforms, Quadro GPUs for enterprise design, GRID software for cloud-based visual and virtual computing and automotive platforms for infotainment systems.

Graphics accounted for 55.7% of fiscal first-quarter revenues. The segment’s top line surged 34% year over year and 4% sequentially to $4.62 billion.

Compute & Networking represented 44.3% of fiscal first-quarter revenues. The segment comprises Data Center platforms and systems for AI, high-performance computing and accelerated computing, the DRIVE development platform for autonomous vehicles and Jetson for robotics and other embedded platforms.

Compute & Networking revenues soared 66% year over year and 14% sequentially to $3.67 billion.

Market Platform’s Top Line Details

Based on the market platform, Gaming revenues (43.7% of revenues) shot up 31% year over year and 6% sequentially to $3.62 billion.

Revenues from Data Center (45.2% of revenues) jumped 83% year over year and 15% from the previous quarter to $3.75 billion. This year-over-year upswing was driven by the strong demand for its Ampere architecture products from cloud computing and AI providers.

Professional Visualization revenues (7.5% of revenues) increased by a whopping 67% year over year to $622 million, primarily driven by the increased sales of workstations as enterprises supported hybrid work environments. However, the segment’s revenues declined 3% sequentially due to the decreased sales of desktop workstation GPUs, partially offset by higher notebook workstation GPUs.

Automotive revenues (1.7% of revenues) in the reported quarter totaled $138 million, down 10% on a year-over-year basis, as the segment suffered from the automaker’s supply constraints and the decline in legacy cockpit revenues. However, Automotive sales increased 10% sequentially, mainly driven by AI cockpit revenues.

OEM and Other revenues (1.9% of revenues) plunged 52% year over year to $158 million, mainly due to the weak performance of Cryptocurrency Mining Processors, which generated nominal sales during the quarter compared with $155 million in the year-ago quarter. Moreover, the division’s sales declined 18% on a quarter-over-quarter basis, mainly due to lower entry-level notebook GPU sales.

Operating Details

NVIDIA’s non-GAAP gross margin expanded 90 basis points (bps) year over year to 67.1%, mainly on a higher-end mix of GeForce GPUs within Gaming and the reduced impact of acquisition-related costs. On a sequential basis, the gross margin was 10 bps higher, mainly driven by increased contributions, along with favorable product mix changes within the Data Center end market, partially offset by the higher sales of system-on-a-chip for game consoles.

Non-GAAP operating expenses flared up 35.2% year over year and 11.1% sequentially to $1.61 billion on higher compensation-related expenses associated with employee growth and increased engineering development costs.

The non-GAAP operating income jumped 55% year over year and 8% quarter over quarter to $3.96 billion.

Balance Sheet and Cash Flow

As of May 1, 2022, NVIDIA’s cash, cash equivalents and marketable securities were $20.34 billion, down from $21.21 billion as of Jan 30, 2022.

As of May 1, 2022, the total long-term debt (including current maturities) was $10.95 billion, flat with the quarter ended Jan 30, 2022.

NVIDIA generated $1.73 billion in operating cash flows, down from the year-ago quarter’s $1.87 billion and previous quarter’s $3.03 billion. The free cash flow was $1.35 billion, down from the year-ago quarter’s $1.56 billion and previous quarter’s $2.74 billion.

In the first quarter, the company returned $2.1 billion to shareholders through $100 million in dividend payouts and $2 billion in share repurchases.

Second-Quarter Guidance

For the second quarter of fiscal 2022, NVIDIA anticipates revenues of $8.10 billion (+/-2%), lower than the Zacks Consensus Estimate of $8.39 billion. The company’s second-quarter sales guidance includes an estimated reduction in revenues of approximately $500 million related to Russia and pandemic-related lockdowns in China.

The GAAP and non-GAAP gross margins are projected at 65.1% and 67.1%, respectively (+/-50 bps). GAAP and non-GAAP operating expenses are estimated at $2.46 billion and $1.75 billion, respectively.

GAAP and non-GAAP other income and expenses, excluding gains and losses from non-affiliated investments, are anticipated at approximately $40 million.

The GAAP and non-GAAP tax rate for the quarter is estimated at 12.5% (+/- 1%). The company projects to make capital expenditure between $400 million and $450 million during the quarter, including principal payments on property equipment.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -9.19% due to these changes.

VGM Scores

Currently, Nvidia has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Nvidia has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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