Nvidia (NVDA) is scheduled to report results of its third fiscal quarter after the market close on Thursday, February 13, with a conference call scheduled for 5:30 pm ET. What to watch for:
1. OUTLOOK: During the company's last earnings call, Nvidia said it sees fourth quarter revenue of $2.95B, plus or minus 2%, fourth quarter gross margin of 64.5%, and fourth quarter tax rate between 8%-10%. The company also expects fourth quarter to be much stronger driven by AI and inference. Meanwhile, Nvidia's CFO Colette Kress said during the Credit Suisse Technology, Media and Telecom conference that the company expects accelerated growth between the third quarter and the fourth quarter in the datacenter business.
2. UPSIDE IN DATA CENTER PROBABLE: On Wednesday, Wedbush analyst Matt Bryson raised his price target for Nvidia to $295 from $243 as he believes upside in the company's data center sales is probable in light of recent stronger hyperscale buying trends. Moreover, should Nvidia close its proposed Mellanox (MLNX) deal, his numbers for fiscal years 2020 and 2021 could increase considerably with the latter's "strong performance" over the past year having made the deal appear increasingly favorable for Nvidia. He has an Outperform rating on Nvidia shares.
3. CHECKS SUGGEST BETTER DEMAND: On Monday, RBC Capital analyst Mitch Steves also raised his price target for Nvidia to $301 from $251, while keeping an Outperform rating on the shares. The analyst's channel checks suggest both gaming and data center demand came in better than expected in the company's January quarter, particularly when compared to Street estimates. Steves added that assuming Nvidia hits his new increased estimates, the company would have a revenue run-rate similar to October of 2018 while the stock is $50 below its $300 peak. Further, Nvidia's operating margins will improve to 40%-plus by the middle of 2020, Steves wrote in a pre-earnings research note. Overall, he expects the company's January quarter will come in a "bit ahead" of the high-end of its guidance.
4. GAMING STREAMING SERVICE: Earlier this month, Nvidia announced the launch of its cloud-based gaming streaming service called GeForce NOW. "For a limited time, we're offering the premium experience as a Founders membership. The first three months are free, followed by a discounted rate of $4.99 a month for all of 2020," the company said in a blog post.
On Wednesday, a representative from Nvidia said on the company's forums that Activision Blizzard's (ATVI) games will be removed from Nvidia's GeForce Now game streaming service. "Per their request, please be advised Activision Blizzard games will be removed from the service," the representative said. "While unfortunate, we hope to work together with Activision Blizzard to reenable these games and more in the future. In addition to the hundreds of games currently supported, we have over 1,500 games that developers have asked to be on-boarded to the service. Look for weekly updates as to new games we are adding."
5. CORONAVIRUS RISK: Acknowledging that it seems difficult to quantify the coronavirus impact directly on U.S. semiconductors, with potential issues both on the demand side and supply side, Bernstein Stacy Rasgon noted that most semi companies have at this point refrained from baking in any coronavirus impact. The analyst believes that Nvidia's gaming segment could suffer some weakness given china exposure and possible production slowdowns.
