Nvidia (NVDA) is set to report earnings in two days, or on May 26th, 2021 Wednesday following the close. Investors have high expectations heading into the quarterly earnings report mostly driven by consumer and datacenter demand for GPUs following the 3000 series release (over two quarters ago).
We think investors can get excited ahead of the report, as demand for GPUs has trended higher ever since the beginning of the pandemic, and productivity investments into AI will depend heavily on GPU purchases for data centers. In the prior quarter, Nvidia reported, “For fiscal 2021, revenue was a record $16.68 billion, up 53 percent from $10.92 billion a year earlier. GAAP earnings per diluted share were a record $6.90, up 53 percent from $4.52 a year earlier. Non-GAAP earnings per diluted share were $10.00, up 73 percent from $5.79 a year earlier.”
Can Nvidia Reach $700 Following the Earnings Report?
Figure 1. Nvidia Price Chart
With the strong growth rates on top and bottom line metrics, investors still sold the news following the February earnings report. We still think Nvidia is an attractive growth stock, and a number of things could change the psychology around certain price levels, but no doubt, for Nvidia to break out significantly the company will need to produce earnings/revenue results that are well ahead of current consensus expectations of Q1’22 $5.39B revenue and Q1’22 $3.27 dil. EPS.
Revenue is already forecasted to grow by 79.8% y/y and dil. EPS is expected to grow by 81.6%. So, we’re expecting the company to deliver ahead of analyst consensus though we’re not certain if a surprise quarter alone would push the stock price to $700.
Stock split may affect trader’s psychology
However, these price levels probably won’t be as relevant, as Nvidia announced a recent 4-1 stock split. So, at a 4-1 split, the current price of Nvidia at $625 would instead trade for $156.25, implying that the $700 resistance area would convert to $175 upon the split adjustment being factored in.
According to Nvidia, the number of authorized common stock is going to increase to 4 billion shares following the approval from the annual meeting of shareholders on Thursday June, 3. Following the approval of authorized share increase, each Nvidia stockholder of record at the close on June 21, 2021 will receive a dividend of three additional shares of common stock for every share held on the record date, which will then be distributed after the close of trading on July 19, 2021. The stock will begin to trade on a split adjusted basis from July 20th, 2021 onward.
Analyst sentiment positive heading into the quarterly report
Webush currently assigns a PT of $640 based on 40x FY’23 dil. EPS. We currently don’t offer estimates of our price target on Nvidia, though we think the projected growth and valuation estimate seems reasonable.
Matt Bryson from Wedbush on Nvidia’s upcoming quarterly report:
We see strength continuing across segments. While upside to expectations will again likely be led by client GPUs, we believe NVDA will provide a favorable guide around expected datacenter growth trends. In particular, elongated lead times for Mellanox NICs suggest strength in that space with the Milan and Ice Lake launched (with the latter finally supporting gen 4 PCIE) likely providing further NIC/server momentum and upside for these parts likely constrained by supply rather than demand.
Matt Bryson goes onto discuss consumer demand for graphics:
Gaming (and crypto) demand continues to drive robust uptake of client GPUs. over two quarters post the launch of new GTX 3000 chips, supply still remains constrained on this front. With nvidia already having suggested April number were tracking ahead of expectations due to strength in this market and with our model looking for a slight dip in July, we very much expect this segment will exceed our expectations.
We continue to look forward to Nvidia’s pipeline updates following the quarterly earnings report, and sales contribution from lower-end 3000 variant graphics cards. Nvidia continues to maintain a strong moat around its GPU business with no signs of AMD coming up with a counter punch quite yet, and Intel hasn’t found an answer to Nvidia’s datacenter push with AI based graphics computing.
We think investors have priced in a lot of growth already, so unless the results deliver considerably above estimates, we anticipate the stock will continue to consolidate from $600 to $700 or split adjusted from $150-$175 for the foreseeable future.
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