Nvidia Corporation (NASDAQ:NVDA) definitely took a hit in the recent market turbulence. Yet the performance for the year is still impressive. Consider that the gain for NVDA stock is more than 10% in 2018.
But investors will get a much better idea about Nvidia’s future when the company reports its fourth-quarter results on Thursday, after market close.
Earnings Preview for NVDA Stock
So let’s take a look at the forecast. Revenues are expected to jump by 23% to $2.67 billion and earnings to rise by 17% to $1.16 on NVDA stock.
For the most part, the company has a pretty good track record when it comes to earnings. And even with the recent volatility in the markets, investors have still been rewarding those companies that out-perform, as seen with Amazon.com, Inc. (NASDAQ:AMZN). So this could bode well for Nvidia stock.
As for the quarter, the company was busy. Here are some of the news items:
- Nvidia and Baidu Inc (ADR)(NASDAQ:BIDU) entered an agreement to create a production-ready AI self-driving vehicle platform, which will be focused on the Chinese market. The country accounts for about 30% of global passenger vehicle sales.
- NVDA announced an agreement with Continental — a leading automotive tech company — to develop a system for self-driving cars. The platform, which will launch in 2021, will allow for no steering wheels or pedals (Level 5 self-driving capabilities).
- The company partnered with Baker Hughes to develop systems to leverage data to improve finding, extracting, processing and delivering oil.
Oh, and there was something else to note: rival Intel Corporation (NASDAQ:INTC) got embroiled in a controversy regarding the security of its chips. Because of this, investors saw this as positive for NVDA stock as the company could capitalize on the news to gin up more sales of its own offerings.
Nvidia Stock and the Analysts
Lately, some analysts have been getting cautious on NVDA stock. Although, this should be no surprise as the valuation has gotten to nose-bleed levels. Consider that the forward price-to-earnings multiple on NVDA stock is at 49X.
So here is some of the latest commentary from analysts:
- Andrew Left, who operates Citron Research, believes that NVDA will fall to $200, a 15% drop. In a tweet, he called it a “dangerous stock.” Some of Left’s concerns regard the emerging the company include the competition, the volatility with cryptocurrencies and the valuation.
- Goldman Sachs Group Inc (NYSE:GS) has taken NVDA stock off its “conviction list.” According to analyst Toshiya Hari: “While we continue to see meaningful upside to FY2019/2020 estimates and maintain our Buy rating, we believe a) the long-term secular growth angle in Datacenter is now better-understood, and near-term dynamics in Cryptocurrency demand may lead to increased earnings volatility.”
Bottom Line on Nvidia Stock
I’ve been bullish on NVDA for some time.
The company’s CEO, Jensen Huang, was visionary in betting the company on the AI opportunity. And yes, the result has been a transformation. The company’s GPU (graphics processing unit) systems have proven to be ideal for AI.
More importantly, the market opportunity is enormous. According to IDC, the global spending on AI hardware and software is projected to go from $12 billion in 2017 to a staggering $57.6 billion by 2021.
So while there is likely to be ongoing volatility with NVDA — which is natural for any growth company — the long-term prospects still look very promising.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.