Why Is Nvidia (NVDA) Down 11.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Nvidia (NVDA). Shares have lost about 11.1% in that time frame, outperforming 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 drivers.

NVIDIA Q4 Earnings & Revenues Beat Estimates

NVIDIA reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.89 per share that beat the Zacks Consensus Estimate by 13.9% and increased a whopping 136% year over year. The bottom line also grew 6% sequentially.

Revenues of $3.11 billion beat the consensus mark by 5.1% and surged 41% year over year. The top line also rose 3% sequentially.

Top-Line Details

Revenues at the GPU Business soared 40% year over year to $2.77 billion. On a sequential basis, segment revenues grew 8%.

Tegra Processor Business revenues were $331 million, up 47% on a year-over-year basis but down 26% sequentially.

Based on market platform, Gaming revenues were up 56% on a year-over-year basis to $1.49 billion owing to strong demand for GeForce desktop and notebook GPUs. However, the same was down 10% sequentially. New blockbuster games like Call of Duty: Modern Warfare’s continued momentum in e-sports and the growing adoption of new RTX SUPER products were tailwinds for this segment.

Revenues from Data Center increased 43% year over year and 33% sequentially to $968 million. Growth was driven by hyperscale and vertical industry end customers.

Purchases of training and inference products along with cloud computing drove hyperscale demand. Vertical industry growth was fueled primarily by consumer Internet companies. Other verticals, such as retail, healthcare and logistics, continued to grow from early-stage buildouts.

Automotive revenues in the reported quarter totaled $163 million, which was flat year-over-year and 1% higher sequentially. Growth in AI cockpit solutions and development services agreements drove the segment.

Professional Visualization revenues climbed 13% year over year and 2% sequentially to $331 million. Strength in desktop and notebook workstations drove year-over-year growth. Meanwhile, the sequential growth was driven by increased demand for desktop workstations, which was partially offset by lower demand for notebook workstations.

OEM and Other revenues jumped 31% year over year and 6% sequentially to $152 million, primarily fueled by growth in entry-level GPUs for PC OEMs.

Quarterly Highlights

During the quarter, NVIDIA announced a collaboration with Tencent to bring PC gaming in the cloud to China — the world’s largest gaming market. NVIDIA’s GPU technology will power Tencent's start cloud gaming service, which is in the early stages of testing.

The company also increased its gaming laptops to 125 models, including the 14-inch ASUS ROG Zephyrus G14 laptop, powered by GeForce RTX.

During the quarter, NVIDIA also partnered with Microsoft (NASDAQ:MSFT) Azure to launch the scalable GPU-accelerated supercomputer in the cloud. It also announced that it is powering the powerful industrial supercomputer, HPC5, with 7,280 NVIDIA V100 GPUs.

Moreover, it was revealed that NVIDIA AI powers Alibaba (NYSE:BABA) and Baidu’s recommendation engines.

During the fourth quarter, the company also collaborated with AWS to power the latter’s Outposts with NVIDIA T4 Tensor Core GPUs, bringing Amazon (NASDAQ:AMZN) EC2 G4 instances to customers’ data centers.

NVIDIA also continued its efforts in the automotive segment with the launch of DRIVE AGX Orin — an advanced software-defined platform for autonomous vehicles.

Operating Details

NVIDIA’s non-GAAP gross margin expanded 940 basis points (bps) from the year-ago quarter to 65.4%, reflecting higher contribution of Data Center products and lower inventory charges in Gaming. These factors also helped the gross margin expand 130 bps sequentially.

Non-GAAP operating expenses grew 7% year over year to $810 million, driven by increased headcount, employee compensation, stock-based compensation and infrastructure costs.

Non-GAAP operating income improved 155% year over year to $1.22 billion.

Balance Sheet and Cash Flow

As of Jan 26, 2020, NVIDIA’s cash, cash equivalents and marketable securities were $10.90 billion, up from $9.77 billion as of Oct 27, 2019.

Total debt, as of Jan 26, was $1.99 billion.

Cash flow from operating activities was $1.46 billion in the fiscal fourth quarter, down from $1.64 billion in the previous quarter.

Free cash flow was $1.32 billion, down from $1.54 billion in the previous quarter.

The company did not make any stock repurchase in the reported quarter due to its pending buyout of Mellanox. NVIDIA expects to close the acquisition in early calendar-year 2020.

Fiscal 2020 Highlights

Revenues for the full fiscal year came in at $10.92 billion, down 7% year over year. Non-GAAP earnings of $5.79 were down 13% year over year.

Guidance

For the first quarter of fiscal 2021, NVIDIA anticipates revenues of $3 billion (+/-2%), which includes a $100-million negative impact of the coronavirus menace. The current Zacks Consensus Estimate is pegged at $2.84 billion.

Data Center is expected to continue its growth momentum in the fiscal first quarter.

Non-GAAP gross margin is projected to be 65-65.4% (+/-50 bps). Non-GAAP operating expenses are expected between $835 million and $1.05 billion.

Capital expenditures of approximately $150-$170 million are expected in the fiscal first quarter.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 14.9% due to these changes.

VGM Scores

Currently, Nvidia has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

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

Outlook

Nvidia has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.