It Looks Like a Tough Quarter for Nvidia Stock Ahead of Earnings

From the beginning of June to late July, NVIDIA (NASDAQ:NVDA) was on the comeback trail. Nvidia stock went from $134 to $179 during this period.

It Looks Like a Tough Quarter for Nvidia Stock Ahead of Earnings

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Yet lately things have come undone. Of course, the overall market has been bearish and the situation with U.S.-China relations have deteriorated quickly. So yes, the Nvidia stock price has come under lots of pressure.

In fact, for the past 12 months, the return is an awful -39%. This is certainly in stark contrast to the prior years when Nvidia could do no wrong.

So what now? Perhaps NVDA is an opportunity here? Well, on Thursday the company will report its results for the second quarter after the market closes, and this will certainly be an important one.

Here’s what the Street is looking for:

  • Revenues are forecasted to drop by 18% to $2.55 billion (keep in mind that the company’s own estimate is for a range of $2.5 billion to $2.6 billion).
  • Earnings are expected to come to $1.14 per share.

Even with the estimated decline on the top-line, NVDA still may have a challenge in beating the forecast. The data center business appears to still be languishing, especially given the impact from rival Advanced Micro Devices (NASDAQ:AMD). The gaming business also continues to have problems.

Here’s what Instinet analyst David Wong wrote:

“With data-center (GPU) sales growing just 4% QoQ in the October 2018 quarter, then falling 14% sequentially in the January 2019 quarter and a further 7% QoQ in the April 2019 quarter (April 2019 down 10% YoY), we expect another YoY decline in data-center segment revenues in the July 2019 quarter and possibly again in the October 2019 quarter.”

Nvidia Stock Quarterly Highlights

NVDA definitely had an active quarter. Here are some of the notable announcements:

  • The company said that partners like Dell Technologies (NYSE:DELL), HP (NYSE:HPQ), Lenovo and BOXX will release ten new NVIDIA RTX Studio laptops and professional-grade mobile workstations. They will highlight new capabilities like real-time ray tracing, advanced AI and ultra-high-resolution video editing.
  • At the SIGGRAPH conference, NVDA announced that top software developers, such as Adobe (NASDAQ:ADBE) and Autodesk (NASDAQ:ADSK), have created over 40 applications for the RTX technology.
  • NVDA launched various new GPUs, including GeForce RTX 2060 SUPER, GeForce RTX 2070 SUPER and GeForce RTX 2080 SUPER, allowing for next-generation games. What’s more, this core RTX technology will be used in the eagerly awaited game, Cyberpunk 2077 (it won over 100 awards at E3 2019).
  • The company entered a strategic alliance with Volvo Group for the development of autonomous trucks.
  • NVDA announced a breakthrough in AI language understanding, which should make it easier for businesses to engage with customer conversations. The company’s AI platform can train one of the most sophisticated models, called BERT, in less than an hour — making inferences in just over 2 milliseconds.

Bottom Line on Nvidia Stock

There’s no doubt that NVDA has been prescient in leveraging its GPU expertise into markets beyond gaming, such as the data center and AI. The result is that the company has become a mega powerhouse in the chip industry.

But the problem is that the competition is starting to take a toll. For example, companies like Qualcomm (NASDAQ:QCOM), Intel (NASDAQ:INTC), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and (NASDAQ:AMZN) are creating their own AI chips. There are also a myriad of startups, like Graphcore, that are gunning for the opportunity.

In the meantime, the situation with US-China relations appears to be far from resolved. This is particularly troublesome for NVDA because it has about 23% exposure to China.

So in light of all this, it’s probably best to hold off on the stock ahead of this week’s earnings report.

Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical IntroductionFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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