Nvidia’s Blow-Out Earnings: Why the Stock Is Flat

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Nvidia  (NVDA) - Get Report beat revenue and earnings estimates handily, but stock had rallied into earnings and company expressed caution about the timing of continuing its share buyback program in light of the coronavirus pandemic. 

The stock fell 1%, then teetered between up and down, then settled at basically flat. It’s been up more than 50% year-to-date, including an 11% gain in the past five days as investors expected solid results. 

The stock now trades at above 45 times earnings estimates for the next year, high for its history, although that valuation may be somewhat justified as the work-from-home environment has accelerated the need for cloud services. That accelerates the need for data center chips. 

Analysts had said exactly that dynamic may become apparent on this earnings report, and it did. Nvidia beat heightened data center expectations and also highlighted the global shift to cloud and data center on the earnings print. 

Here were the results against Wall Street estimates: 

  • Revenue: $3.08B v. $2.975B (result: +39% year-over-year)
  • Gaming: $1.34B v. $1.3B (result: +27%)
  • Data Center: $1.14B v. $1.05B (+80%)
  • Gross margin: 65.8% v. 65% (+680 basis points)
  • Operating margin: 39% v. 37%
  • Adjusted EPS: $1.80 v. $1.65 (+105%) 

Here’s what the company said about its plan for distributing cash to shareholders:

"Due to current market uncertainties, NVIDIA is evaluating the timing of resuming share repurchases and will remain nimble based on market conditions. NVIDIA is currently authorized to repurchase up to $7.24 billion in shares through December 2022. It remains committed to paying its quarterly dividend.” 

Guidance for the current quarter was at revenue of roughly $3.65 billion. "Mellanox is expected to contribute a low-teens percentage of combined second quarter revenue,” management said. Gross margin is expected at 66%, on an adjusted basis, which is a quarter-over-quarter decline, reflecting non-recurring expenses from the Mellanox acquisition. 

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