Nvidia Investors Expected a Lot and the Company Didn't Deliver

Paul Ausick

Nvidia Corp. (NASDAQ: NVDA) reported fiscal 2020 third-quarter results after markets closed on Thursday. For the quarter the chipmaker reported adjusted diluted earnings per share (EPS) of $1.78 and $3.01 billion in revenues. In the same period a year ago, Nvidia reported EPS of $1.84 on revenue of $3.18 billion. Third-quarter results compare to the consensus estimates for EPS of $1.57 and $2.91 billion in revenue.

Nvidia stock posted a recent low around $133 in early June and has added about 57% since then to close at $209.79 in Thursday’s regular session. Of 38 analyst ratings on the stock, seven have Nvidia as a Strong Buy, 14 have a Buy rating, and 15 rate the shares a Hold.

As the company has released more powerful versions of its graphics processing units (GPUs) and vendors have found more ways to use these chips for artificial intelligence and machine learning applications, sales have been strong.

In the current (fourth fiscal) quarter, Nvidia expects to post revenue of $2.95 billion (plus or minus 2%) with forecast “strong sequential growth” in its data center business offset by seasonal declines in its notebook GPUs and its system-on-a-chip (SOC) modules. Adjusted gross margins are forecast at 64.5% and adjusted operating expenses are expected to ring in at $805 million. The company did not offer an EPS forecast.

In the fourth quarter of the prior fiscal year, Nvidia reported revenues of $2.21 billion and EPS of $0.80. Analysts are looking for fourth-quarter EPS of $1.70 and revenues of $3.06 billion for the quarter with EPS totaling $5.40 for the full year on revenues of $10.79 billion.

Founder and CEO Jensen Huang said:

This quarter, we have laid the foundation for where AI will ultimately make the greatest impact. We extended our reach beyond the cloud, to the edge, where GPU-accelerated 5G, AI and IoT will revolutionize the world’s largest industries. We see strong data center growth ahead, driven by the rise of conversational AI and inference.

The company also said it will return to buying back stock after it closes the $6.9 billion acquisition of Mellanox Technologies. Nvidia will pay its regular cash dividend of $0.16 per share on December 20 to shareholders of record on November 29.

Shares are pretty richly priced at around 29-times expected earnings, so even though the company beat on the top and bottom lines and projects revenue growth for the current quarter, shares are not going to make a big move on this report.

The stock traded slightly higher in Thursday’s after-hours session, up about 0.7% at $211.85. The stock’s 52-week trading range is $124.46 to $211.86, a level it reached on Tuesday. The 12-month consensus price target on the stock was $242.42 before results were announced.