All Circuits Go: New Chip Architecture, Cloud Data Center in Focus for Nvidia Q4 Earnings

Nvidia will be reporting its earnings on Feb 24. Investors are likely to listen for developments in the gaming and data center space.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/motherboard: Nvidia earnings
5 min read
Photo by Getty Images

Key Takeaways

  • Nvidia’s tremendous revenue growth in data center business may be a focal point in this coming quarterly report
  • The chipmaker’s new graphics card Ampere is one aspect of the business that could get a close look from analysts
  • The ARM acquisition—if it happens—may be a critical slam dunk in Nvidia’s quest for market dominance

Chipmakers have surged during the pandemic, helped by their dominance in the cloud and gaming spaces where so many of us have been living most of the last year. For Nvidia (NVDA) there are quite a few promising prospects for the coming quarters, though there may be some hurdles in the way for the near-term.

It’s a mixed bag of expectations, which could help explain why, until a recent surge, NVDA’s share price had been locked in a narrow trading range for the past few months. Might this betray a bit of investor indecisiveness? Possibly. We’ll find out more when NVDA reports its Q4 FY 2021 earnings after the bell on February 24.

Regardless, the chipmaker appears to be off to a solid start in 2021 with plenty of strength in its gaming and data center business—two segments that make up 88% of its total revenue. And with a major acquisition possibly in the works, a slew of product launches, and a surprise surge in NVDA’s data center growth, analysts generally have a bullish tone heading into earnings.

After rocketing ahead last summer, NVDA shares have chopped along, but recently broke out above $600 (see chart below). 

FIGURE 1: POWER SURGE. After outpacing the Philadelphia Semiconductor Index (SOX—purple line) through most of 2020, shares of Nvidia (NVDA—candlestick) chopped along, but a recent surge took shares to a new record above $600. Data source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Chips Are All in for Cloud Data Center Growth and Gaming

In the last two quarters, growth in NVDA’s data center business saw an impressive surge. For Q2, it outpaced the company’s gaming revenue for the first time, and although it didn’t repeat that feat last quarter, its quarterly revenue of $1.9 billion saw an impressive year over year advance of 162%.

What’s driving this growth? NVDA has seen increased adoption of its graphic processing units (GPUs) among big cloud computing providers like Amazon (AMZN), Alphabet (GOOGL), and Microsoft (MSFT). At the center of this surge in demand is its latest GPU architecture called Ampere—a new graphics card that several analysts have described positively.

Basically, analysts believe that Ampere presents a massive jump in performance at a lower cost to power high-performance workloads, AI-driven processes, and machine learning. To call Ampere “fast,” according to media site Techradar, would be “an understatement.” For investors, sales in this one component is something you might want to keep an eye on, since it’s part of the data center segment that’s creating a lot of excitement in the industry.

Recently, NVDA acquired Mellanox, a company that makes networking hardware and ethernet switches. It contributed around 13% of NVDA’s data center revenue last quarter. But the major purchase that everyone seems to be anticipating is NVDA’s planned $40 billion ARM acquisition.

It’s a big deal for two reasons: First, ARM makes smart sensor chips that power more than 90% of all smartphones and other gadgets; second, ARM supplies most of NVDA’s competitors. However, the proposed move is far from a done deal, as many analysts expect it to get a fisheye from regulatory authorities. MSFT and GOOGL also recently raised concerns, according to Bloomberg. Consider listening closely to NVDA’s call for any updates on next steps.

Gaming remains NVDA’s largest revenue segment. Bringing in $2.27 billion in Q3, it grew by 37% year over year. Looking ahead, perhaps expect to see NVDA’s new Ampere architecture driving growth in its GeForce RTX 30 series gaming GPUs. Not only is demand “off the charts,” according to video game magazine IGN, the GPUs could remain in short supply until April.

Will NVDA Continue to Outperform Among Chipmakers and the Broader S&P 500?

Earnings season for the broader stock market continues to surpass expectations. About 81% of S&P 500 companies reporting Q4 earnings so far delivered positive EPS surprises, and around 79% surpassed Wall Street’s revenue expectations, according to FactSet. Those figures, by the way, are nearing an all-time high.

If you zoom in on the sector and industry level, chipmakers appear to be getting a strong boost on the shoulders of the high-flying Tech sector. In fact, it’s one among the few industries expecting double-digit revenue growth year over year.

Looking back a year to February 2020, the PHLX Semiconductor Index (SOX)—with gains of over 60%—continues to plough ahead of the Technology Select Sector Index (IXT) at 26% and the S&P 500 Index (SPX) at 17.9%. NVDA, tops them all at 120%, nearly doubling the performance of rival Advanced Micro Devices (AMD), and far outperforming Micron (MU) and Intel (INTC).

Last quarter, NVDA topped expectations with $2.91 adjusted earnings per share and revenue of $4.73 billion. Analysts were expecting $2.57 and $4.41 billion respectively, according to Refinitiv.

In terms of guidance, NVDA is expecting to report revenue of $4.8 billion in its fiscal Q4, according to CFO Colette Kress. On the data center end, it expects a slight sequential decline in data center revenue, as a large China-based enterprise customer has delayed the purchase of its Mellanox networking products.

There’s plenty of action in the chip segment these days, and NVDA is one of those companies in the thick of it. Its Q4 earnings report could set the tone for 2021 and beyond.

All the best,
Shawn

Helpful Educational Content and Programming

  • Check out all of our upcoming webcasts or watch one of the many archived ones, covering a wide range of topics from market commentary to portfolio planning basics to trading strategies for active investors. No matter your experience level, there’s something for everybody.
  • Looking to stay on top of the markets? Check out the TD Ameritrade Network, which is live programming that brings you market news and helps you hone your trading knowledge. And for the day’s hottest happenings, delivered right to your inbox, you can now subscribe to the daily Market Minute newsletter here

TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer.

Print

Key Takeaways

  • Nvidia’s tremendous revenue growth in data center business may be a focal point in this coming quarterly report
  • The chipmaker’s new graphics card Ampere is one aspect of the business that could get a close look from analysts
  • The ARM acquisition—if it happens—may be a critical slam dunk in Nvidia’s quest for market dominance

Related Videos

Call Us
800-454-9272

Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

adChoicesAdChoices

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2021 Charles Schwab & Co. Inc. All rights reserved.

Scroll to Top