Expect GPUs To Continue To Drive Nvidia’s Earnings Growth

by Trefis Team
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Nvidia (NASDAQ:NVDA) is seeing solid growth in its GPUs segment of late, led by higher demand for its gaming GPUs. However, there has been a significant decline in sales of cryptocurrency-specific products. This trend will likely continue in the near term. The company has been a pioneer in introducing new advancements and catering to the high-end GPU market, and this should continue to drive Nvidia’s earnings growth. In fact, the company is expected to announce a new series of GeForce gaming GPUs today, which will likely be the  successors to the popular GTX 1080 series. We have created an interactive dashboard analysis ~ What Is The Outlook For Nvidia ~ on the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

GPUs As Well As Tegra Products Will Likely Grow In Double Digits In The Near Term

We forecast the GPU segment revenues to be north of $10.5 billion in fiscal 2019. This can primarily be attributed to growth in its gaming GPUs. The company has seen strong growth in the first half of fiscal 2019, due to higher demand for its Max-Q based notebooks. Also, Nvidia’s foray into data centers, expanding in both High Performance Computing (HPC) and the cloud is aiding the segment growth. The data center revenues were up a solid 80% in H1 FY19, led by an increased acceptance of its Volta architecture. It should be noted that Nvidia is a leader in artificial intelligence and deep learning, and has developed a range of products for the same. These products are gaining popularity, and we expect this trend to continue going forward. However, the company’s management in its recent earnings conference call stated that the contribution from cryptocurrency-specific products will be negligible going forward.

Looking at the Tegra Processors, revenues have grown from around $560 million in fiscal 2016 to $1.5 billion in fiscal 2018. The recent growth can be attributed to its SOC modules, which are used in the Nintendo Switch console. The gaming console in particular has been a massive hit and has sold around 20 million units since its launch. In addition, the company’s automotive division has been doing well of late, and growing in mid-teens. The company’s automotive platforms remain on a sharp upward trajectory with AI (artificial intelligence) to be introduced in several vehicle lineups. As such, we expect the segment revenue to grow 25% in fiscal 2019.

Overall, we expect the GPUs to drive the company’s near term as well long term growth, led by gaming. We currently forecast earnings of $7.18 per share in fiscal 2019, and a price to earnings multiple of 34.5x by the end of fiscal 2019, to arrive at our price estimate of $248 for Nvidia, which is slightly above the current market price.


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