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Nvidia Reports Earnings on Thursday: 5 Important Things to Watch

Rebounding cloud orders, gaming GPU trends and China commentary are among the things to watch as Nvidia reports.
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Nvidia’s  (NVDA) - Get NVIDIA Corporation Report stock is up over 30% since the company’s November earnings report, and has doubled from its June 2019 lows.

It’s safe to say that the bar is being set higher going into Nvidia’s latest report, which arrives on Thursday afternoon. Currently, the consensus among analysts polled by FactSet is for January quarter (fiscal fourth quarter) revenue of $2.96 billion (up 34% annually with the help of of favorable comps), GAAP EPS of $1.34 and non-GAAP EPS of $1.67.

For the seasonally weaker April quarter -- Nvidia shares quarterly sales guidance in its reports -- the revenue consensus stands at $2.85 billion (up 28%).

I’ll be live-blogging Nvidia’s report, along with an earnings call that starts at 5:30 P.M. Eastern Time. Here are a few things to watch.

1. Cloud Demand

Three months ago, Nvidia disclosed that its sales to cloud giants (the proverbial hyperscalers) rose sequentially and annually in its October quarter, after dropping earlier in the year due to a cloud capital spending slowdown. The company also forecast sales to hyperscalers would grow again in the January quarter.

And since then, disclosures from the likes of Intel  (INTC) - Get Intel Corporation Report and Western Digital  (WDC) - Get Western Digital Corporation Report have provided additional signs that cloud hardware capex is on the upswing. Thanks to expectations for strong cloud growth, the consensus is for Nvidia’s Datacenter segment revenue, which covers server GPU and hardware sales, to be up 22% to $827 million.

In addition to its total Datacenter revenue, keep an eye out for any comments Nvidia shares about how demand is respectively trending for accelerators used for AI training (a market that Nvidia has long dominated) and AI inference (a more competitive market that has begun growing strongly). Nvidia’s inference-related sales more than doubled annually during its October quarter.

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2. Gaming GPU Sales

Following stronger-than-expected October quarter sales, Nvidia guided for its Gaming segment revenue, which covers PC gaming GPU and console processor sales, to be down sequentially. While desktop GPU sales were forecast to grow, lower notebook GPU sales (blamed on seasonal notebook build patterns) and Nintendo Switch processor shipments were expected to weigh.

The consensus is for Gaming GPU revenue to come in at $1.53 billion -- down 8% sequentially, but up 60% annually thanks to a major year-ago tumble caused by inventory corrections that followed a collapse in demand from cryptocurrency miners.

3. Workstation and Automotive Sales

Nvidia’s Professional Visualization revenue, which covers sales of its Quadro workstation GPUs, is expected to be up 13% to $330 million. This business has steadily grown in recent quarters, aided by rising sales to professional content creators.

Automotive revenue, which covers both infotainment processors and engagements related to Nvidia’s Drive platform for autonomous and semi-autonomous cars, is expected to be up 6% to $173 million.

4. Margin Growth

Nvidia’s non-GAAP gross margin (GM) rose 3.1 percentage points annually during its October quarter to 64.1%. The sale of some previously-written-down inventory helped, but so did higher gaming GPU average selling prices and lower graphics DRAM prices.

Nvidia has guided for a January quarter GM of 64% to 65%, up from a year-ago level of 62.1%.

5. China and Mellanox Commentary

China is a major end-market for both Nvidia’s gaming and server GPUs. As a result, it’s worth keeping an eye on any comments Nvidia makes about the coronavirus outbreak’s impact on its sales within the country. A slew of tech companies, including Apple  (AAPL) - Get Apple Inc. Report and Qualcomm  (QCOM) - Get Qualcomm Inc Report, have adjusted their quarterly sales guidance ranges to take the outbreak into account.

Also keep an eye out for any comments made about regulatory approval for the $6.9 billion Mellanox Technologies acquisition, which was announced 11 months ago. With EU regulators having approved the deal in December, Chinese approval is the last remaining roadblock.