Nvidia $NVDA is scheduled to release its Q3 financial results after the closing bell on Thursday, November 15. If you are not familiar with the company, Nvidia creates chips that power everything from gaming consoles to huge data and server centers. The company has grown into a leader in graphics chips that have helped gaming reach a whole new level of gameplay and realism. The company is also benefiting from the increase in demand for cloud computing, AI and machine learning. Let’s look at the factors which will influence the company’s results.
Nvidia has launched new products with graphics-processing units based on its new “Turing” architecture, which will replace the “Pascal”. This upcoming earnings report will give a first glimpse at how these products are selling early in their life, even though they have not had much time to become widely used yet. Nvidia has focused on what’s called “real-time ray tracing” that basically allows game designers to offer more realism and depth in their games. Think Pixar-level realism. Morgan Stanley analyst Joseph Moore said last week the adoption of the Turing-family of chips will likely be a “slow burn,” and cut his price target on $NVDA stock while maintaining an overweight rating.
“The ability to do ray tracing — a technology that has been associated with rendering of Pixar animated films that render a frame every few minutes — in real time takes us a large step closer to photorealism in games,” said Moore. “It is a big deal — but writing software to take advantage of it will take time, and implementation for early adopters seems underwhelming per press reports.”
The first Turing-based cards are also going to be more expensive so Nvidia could face a squeeze from gamers who would probably go to the secondary market for Pascal-based cards. Nvidia is also expected to benefit from the expansion of cloud computing, artificial intelligence, and machine learning.
On Tuesday, Susquehanna Financial Group analyst Christopher Rolland upgraded Nvidia to a positive rating from neutral but cut his price target to $230 from $250, stating he thought the chances were high the company’s results fall short of the Wall Street consensus on Thursday.
The company has seen a massive decline in cryptocurrency GPU sales in the recent past, and this trend will likely continue. After reporting the Q2 earnings this year the stock was down nearly 5%. Also, the impact from tariffs could weigh on the company’s overall earnings. Last year Nvidia’s Q3 earnings report beat Wall Street expectations with EPS of $1.33 on revenue $2.64B instead of predicted EPS $0.94 on revenue of $2.36B. After that shares fell as much as 2 percent in after-hours trading but later picked up more than a percent.
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Wall Street’s Estimates
EPS (Average Estimate): $1.71/share
Q4 Revenue (Average Estimate): $$3.24B