Although one of the consistently strong technology sector names, Nvidia Corporation (NASDAQ:NVDA) hasn’t had a smooth road this year.
Recently, NVDA stock surged ahead of the company’s first quarter fiscal 2019 earnings report. However, it’s also coming off significant industry-related headwinds. Which road will the company ultimately take following the Nvidia earnings report?
As a semiconductor company, Nvidia set itself apart through its multiple businesses. One of the most promising is its driverless technologies.
However, the public’s faith in such innovations was rocked in early spring. Though nothing directly to do with NVDA, a Tesla Inc (NASDAQ:TSLA) Model X fatal crash spooked investors. This incident followed a separate fatality involving an Uber driverless-vehicle test.
Nvidia stock took a steep nosedive immediately after the Tesla crash. Although public uproar has since died down, investors will be keen to learn more during the Nvidia earnings call.
Another sector that’s a double-edged sword for NVDA and rival Advanced Micro Devices, Inc. (NASDAQ:AMD) is cryptocurrencies. Crypto-mining demand catapulted graphics processor sales, especially in the second half of 2017. With bitcoin at that time soaring to unimaginable heights, many folks took up mining as a get-rich-quick scheme.
That said, cryptocurrencies saw a massive correction that started late last year. Although it hasn’t yet negatively impacted NVDA stock, it will surely be a talking point during the Nvidia earnings call.
So, which way will the company turn? Irrespective of actual results, all signs point to a positive outcome for Nvidia stock.
Shareholders Brimming With Confidence Ahead of Nvidia Earnings
With Nvidia earnings for Q1 on the horizon, shareholders love what they’re seeing. On Wednesday, NVDA stock closed up more than 2% to $255.78, an all-time closing high. Not only that, the company rarely misses.
Since Q1 FY 2015, Nvidia has failed to hit its consensus earnings per share target only twice. The two incidents were consecutive during the first half of FY 2016. Since then, it’s been smooth sailing, with an average positive earnings surprise in the double digits.
For the upcoming Q1, consensus estimates expect EPS to come in at $1.47. This is well into the upper end of the estimate spectrum, which ranges from $1.26 to $1.57. In the year-ago quarter, the company hit a 79-cent EPS, up nearly 20% from the 66-cent consensus target.
On the revenue front, analysts expect the tech firm to haul in $2.9 billion. As with the EPS estimates, this figure is on the optimistic end, with forecasts ranging from $2.5 to $2.9 billion. In Q1 fiscal 2018, the company rang up $1.9 billion in top-line sales.
Clearly, Wall Street has sky-high expectations. Nevertheless, the positive sentiment is not at all unreasonable. For instance, over the past four years, the company has catapulted sales to over 107% growth. Moreover, sales have increased with only a comparatively modest bump in operating expenses. Overall, the company is better prepared than most, which is why I’m bullish on Nvidia stock.
I still think that the major risk, though, lies with its automated driving technologies. With key partners shying away from driverless vehicles at the moment, this could negatively affect Nvidia’s microchip sales. With that said, I think too many tailwinds exist to derail NVDA stock.
Markets Almost Always Respond Bullishly to Nvidia Earnings
Perhaps the most important point to keep in mind is that the markets usually respond bullishly to Nvidia earnings reports. This is true irrespective of the actual results.
Since Q1 FY 2015, Nvidia stock averages 9.2% returns a week after the earnings disclosure. A month afterward, the average performance gets even better — nearly 12.5%.
Interestingly, during this time frame, NVDA stock always performs well longer term when it has a strong market move a day prior to an earnings release. The average one-month return post-earnings is 10% whenever the company enters earnings up at least 1% in the markets. Since NVDA shares were up 2.2% ahead of Q1, potential buyers can have confidence with this momentum.
But these technical stats only serve to provide further evidence that NVDA is a fundamentally sound company. Therefore, I don’t expect too many shockers from the upcoming Nvidia earnings report, unless they’re of the positive variety.
As of this writing, Josh Enomoto is long bitcoin.