Expect Strong GPU Sales To Drive Nvidia’s Q3 Earnings Growth

by Trefis Team
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Nvidia (NASDAQ:NVDA) is set to report its Q3 results on November 15, and we forecast a low 20s percent growth in the earnings (y-o-y). We expect both the Tegra Processors and GPU segment to see revenue growth in the high teens. The company has seen massive decline in cryptocurrency GPU sales in the recent past, and this trend will likely continue. Also, the impact from tariffs could weigh on the company’s overall earnings. Effective September, the U.S. has put 10% tariffs on several Chinese goods. We have created an interactive dashboard analysis ~ What Is The Q3 Outlook For Nvidia ~ on the company’s expected performance in Q3. You can adjust various drivers to see the impact on the company’s overall earnings, and price estimate. 

Expect Strong Growth In GPUs And Tegra Processor Segments

We forecast both GPUs and Tegra Processor segments to see revenue growth in high teens to $2.6 billion and $490 million, respectively, in Q3. The Tegra Processor segment will likely see continued growth in its SOC modules for Nintendo Switch in the near term, given the holiday season is approaching, and Nintendo Switch sales are expected to be higher. Apart from SOC modules, the company is also seeing growth on the Automotive side, led by its AI (artificial intelligence) platforms, such as DRIVE PX, which are doing well in the market.

Looking at the GPUs segment, we expect the growth to be primarily led by its gaming GPUs, which are seeing higher demand due to its Max-Q technology, and the Datacenter, which is seeing strong demand for its Volta architecture. In fact, the Datacenter sales were up 77% in the first half of 2018. The decline in cryptocurrency GPU sales is well known, and the company expects negligible contribution from the same. However, the tariffs imposed in September on Chinese goods could have some impact on the company’s performance in the near term.

We Estimate The Full Year EPS To Be $7

Overall, we believe that GPUs will be the key growth driver for Nvidia in Q3. We currently estimate the company’s overall revenues to be a little under $3.10 billion in Q3, of which 84% can be attributed to GPUs, and Tegra Processors making up for the rest. We forecast the EPS to be $1.63 in Q3, and $7.09 for the full year 2018. We use a TTM price to earnings multiple of 35x to arrive at our price estimate of $248 for Nvidia. This implies a premium of over 30% to the current market price. Note that Nvidia’s stock has declined by more than 20% over the past month, following the weak Q3 numbers from some of the tech stocks and the market’s reaction to the tariffs.

 

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