Nvidia Earnings: Don’t Expect Much From Cryptocurrency

Semiconductor company Nvidia reports earnings after market close on Thursday, November 15. Here’s a look at what might be expected from its quarterly report.

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Nvidia (NVDA) had a massive move last month, setting a 52-week high of $292.76 on Oct. 2 and then a 52-week low of $176.01 on Oct. 29. Shares have slightly rebounded since then on some positive analyst comments and upgrades. The next catalyst that will likely play into where the stock goes from here is the company’s earnings report, scheduled for after market close on Thursday, Nov. 15.

For the quarter, NVDA is expected to report EPS of $1.71, up from $1.33 in the prior-year quarter, on revenue of $3.24 billion, according to third-party consensus analyst estimates. Revenue is projected to grow 22.8% year over year. 

Management’s own Q3 guidance is for revenue of $3.25 billion, plus or minus 2%. While they don’t provide earnings guidance,  they indicated GAAP gross margins are expected to be about 62.6% and operating expenses are expected to be $870 million.  

Company Segments

NVDA breaks its business into five segments: Gaming, data center, professional visualization, automotive and OEM & IP (original equipment manufacturers and intellectual property). Here’s what analyst consensus is expecting from those segments:

Gaming revenue is forecasted to be $1.9 billion. In Q2, revenue in this segment grew 52% year over year to $1.81 billion. NVDA announced its new family of Turing GPUs, upgrading from the Pascal architecture launched in 2016. Since these were launched later in Q3 and they’re higher priced relative to Pascal versions, most analysts have said they aren’t expecting a major contribution from the new line this quarter. 

  • Data center revenue is expected to come in at $815 million. This has been the company’s fastest-growing segment in recent quarters. In Q2, this was up 83% year over year to $760 million, which management attributed to strong sales of the Volta products. The latest launch in this division was the Turing T4 GPU,  so management might provide some commentary on initial sales of that line. 
  • Professional visualization revenue of $282 million. In Q2, this segment increased 20% year over year to $281 million.
  • Automotive revenue in Q3 is forecasted to be $160 million. In Q2, automotive revenue was up 13% year over year, coming in at $161 million. 
  • OEM & IP revenue of $110 million. In Q2, revenue in this segment declined 54% year over year to $116 million. OEM & IP includes the cryptocurrency-related sales, which management had previously anticipated would be a larger driver. That changed as the price of cryptocurrencies declined and NVDA said “we are now projecting no contributions going forward” from crypto-specific sales the last time it reported.

A Volatile October. Concerns of a semiconductor slowdown, coupled with trade concerns and more sent shares of NVDA down rapidly over the course of October. It started the month at an all-time high of $292.76 and ended it at a 52-week low of $176.01. The stock has recovered and was trading in the low $200s after climbing higher at today’s open. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Nvidia Options Activity

Options traders have priced in about a 9.5% ($19.52) stock move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 71st percentile as of this morning, whereas historical volatility was at the 97th percentile. 

In short-term trading at the Nov. 16 monthly expiration, activity has been all over the place on the call side, with most of it spread between the 200 and 230 strike prices. On the put side, the 190 and 200 strikes have both had heavier volume in recent trading. 

There hasn’t been any trading that stands out over the next several weekly expirations. At the Dec. 21 expiration, the 220 and 230 strikes on the call side have been active, while open interest is the highest at the 250-strike call, a ways out of the money. On the put side, there hasn’t been much activity that stands out. Mostly, recent trading has been concentrated between the 170 and the 200 strikes. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Good Trading,

JJ

@TDAJJKinahan

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