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Nvidia Reports Earnings on Wednesday: 5 Key Things to Watch

Keep an eye on the performance of Nvidia's Gaming and Data Center segments, as well as any commentary about cloud spending trends.

Since Nvidia  (NVDA) - Get NVIDIA Corporation Report last reported in May, its stock has risen another 40%, leading its market cap to top $300 billion.

It's safe to say that markets will be looking for strong results and guidance -- quite possibly numbers that comfortably top analyst estimates -- when the GPU giant reports on Wednesday afternoon.

Currently, the consensus among analysts polled by FactSet is for Nvidia to post July quarter (fiscal second quarter) revenue of $3.65 billion (up 42% annually) and non-GAAP EPS of $1.98.

For the October quarter -- Nvidia typically provides quarterly sales guidance -- the revenue consensus is at $3.97 billion (up 32%).

I'll be live-blogging Nvidia's report, which has generally arrived at 4:20 P.M. Eastern Time on the day that it's due, along with an earnings call scheduled for 5 P.M.. Here are some things to keep an eye on.

1. Gaming Revenue and Commentary

The consensus is for Nvidia's Gaming segment -- it covers sales of gaming GPUs and console processors -- to post July quarter revenue of $1.41 billion (up 7% annually) and October quarter revenue of $1.7 billion (up 3%). Both of those numbers look pretty beatable.

The July quarter estimate looks beatable because gaming activity is quite elevated right now, with Nvidia especially benefiting from strong demand for gaming notebooks and (since it's powered by Nvidia's Tegra X1 processor) the Nintendo Switch.

Along with the aforementioned reasons, the October quarter estimate looks beatable since Nvidia is widely expected to unveil high-end desktop GPUs based on its new Ampere architecture at a Sept. 1 event. Though Nvidia doesn't provide formal guidance for individual segments, it might share some comments on the call about how it sees gaming GPU and Nintendo Switch processor sales faring this quarter.

2. Data Center Tailwinds

Expectations are high for Nvidia's Data Center segment, which covers sales of server GPUs, Nvidia's DGX enterprise servers and recently-acquired Mellanox Technologies.

Officially, the consensus is for Data Center revenue to be up 162% to $1.71 billion. Excluding the July quarter revenue contribution Nvidia forecast Mellanox would provide, Data Center revenue is expected to be up around 90%.

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Heavy capital spending by internet/cloud giants (the proverbial hyperscalers) that have been adding capacity as they deal with COVID-19-related traffic surges has been a tailwind for Data Center revenue. Nvidia is also benefiting from the recent launch of a new flagship server GPU (the Ampere-based A100) and a new enterprise server (the DGX A100), as well as from ongoing AI-related investments by hyperscalers and others.

3. Potential Data Center Headwinds

A handful of chip and component suppliers to hyperscalers, including Micron  (MU) - Get Micron Technology, Inc. (MU) Report and Western Digital  (WDC) - Get Western Digital Corporation Report, have cautioned that their sales to these companies will cool off a bit in the second half of 2020, following a very strong first half.

In addition, many enterprise hardware suppliers have reported seeing weak demand, as struggling businesses pare back on discretionary IT investments.

It's possible that Nvidia's sales to both cloud giants and traditional enterprises will hold up relatively well in the back half of the year, given its recent GPU and server refreshes as well as the strategic importance the hyperscalers place on their AI-related investments. But with expectations as high as they are, any comments that the company shares about expected October quarter sales will be closely scrutinized. Currently, the October quarter revenue consensus is at $1.78 billion.

4. Other Businesses

With recent auto plant shutdowns weighing heavily, the consensus is for Nvidia's Automotive revenue -- it covers infotainment processor sales and engagements related to Nvidia's Drive platform for autonomous and semi-autonomous cars -- to be down 53% annually to $99 million.

The Professional Visualization segment, which covers sales of Nvidia's Quadro workstation GPUs, is expected to see revenue grow 3% to $299 million.

The OEM & IP segment, which among things covers sales of non-gaming GPUs and embedded computing solutions, is expected to see revenue grow 23% to $136 million. Strong notebook demand is a tailwind for this segment, and so might growing demand for Nvidia's Jetson computing boards, which are used within robots, drones and other embedded systems.

5. Any Commentary About ARM

There have been a slew of reports stating that Nvidia is in talks to buy British CPU IP giant ARM from Japan's SoftBank. Recently, the U.K.'s Evening Standard reported that a deal that could value ARM at up to £40 billion ($52.4 billion) is "on course to be complete by the end of the summer."

Given that buyout talks are (from all indications) ongoing, Nvidia might simply decline to comment on anything ARM-related. But there's a good chance that the company will get a question or two about ARM on the call, given both the deal's reported size and its potential strategic implications.

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