NVIDIA Q4 preview: Where next for NVIDIA stock?

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Josh Warner
By :  ,  Market Analyst

When will NVIDIA report Q4 earnings?

NVIDIA is scheduled to publish fourth quarter earnings on Wednesday February 16.


NVIDIA Q4 earnings preview

Expectations are high ahead of NVIDIA’s earnings after its rival Advanced Micro Devices posted strong results earlier this month. AMD reported record sales that beat expectations in the fourth quarter while earnings were also higher than forecast, partly because average selling prices came in higher than forecast as companies continue to scramble to get their hands on the chips they need.

That theme should also play out for NVIDIA this week, and the fact AMD beat expectations suggest NVIDIA could do the same. Wall Street forecasts NVIDIA will report record quarterly revenue of $7.4 billion, in-line with the company’s guidance. That would be up 48% from the $5.0 billion in sales delivered the year before and up from the record $7.1 billion booked in the previous quarter.

The company’s largest division supplying the gaming market is forecast to deliver 35% growth in sales during the quarter to $3.36 billion. NVIDIA RTX, which the company describes as ‘the most advanced platform for ray tracing and AI technologies’, has been the primary driver behind growth in high-end gaming laptops and has led ‘our biggest-ever refresh cycle with gamers’ that are eager to upgrade.

Its second biggest unit providing chips for data centres is expected to report its third consecutive quarter of faster year-on-year growth of over 65% to $3.15 billion from $1.90 billion, underpinned by fast-growing demand as businesses shift over the cloud. Hyperscale customers that have the largest data centres have been leading the growth in sales this year as they continue to opt for NVIDIA’s GPUs.

Meanwhile, analysts have pencilled-in over 86% growth in revenue from its professional visualisation unit to $572.2 million in the quarter, while its division serving the supply-hit automotive market is expected to nudge-up 1.5% year-on-year to $147.2 million, marking the third consecutive quarter of slower growth.

Higher selling prices should allow NVIDIA to at least maintain high levels of profitability, or possibly improve it if it can beat expectations. Its adjusted gross margin has improved for three consecutive quarters and came in at 67% during the last update, and NVIDIA has said this should remain flat in the fourth quarter. Investors are hopeful this can continue growing going forward as more sales shift toward its higher-margin data centre division, and the possibility that NVIDIA could start charging for its growing portfolio of software also adds a new potential high-margin catalyst.

Adjusted EPS is expected to rise 58% year-on-year to $1.22 from $0.78, while reported EPS at the bottom-line is forecast to jump 73% to $1.00 from $0.58.

We are likely to see NVIDIA reiterate its strong prospects as a standalone business after its mega-takeover of British chip designer Arm collapsed last week. The US firm admitted the regulatory hurdles were simply too high to overcome, prompting the current owner of Arm - Japanese conglomerate Softbank - to prepare to list Arm through an IPO sometime in the next 12 to 13 months.

This will place some pressure on the outlook for 2022, with NVIDIA set to provide guidance for the first quarter of this year when it releases earnings. Wall Street currently expects NVIDIA to target revenue of around $7.2 billion in the first three months of 2022. That would be some 28% higher than the year before, although that will mark a significant slowdown in growth as it starts to come up against tougher comparatives this year following the boom in demand since the start of the pandemic. Its adjusted gross margin is forecast to remain broadly flat at just over 67%.

Notably, the Semiconductor Industry Association – the ‘voice of the US semiconductor industry’ – revealed just today that global chip sales grew at a record pace of over 26% in 2021 to $555.9 billion but warned this growth is forecast to slow to just 8.8% in 2022. That suggests NVIDIA is among those outperforming the wider industry but also cements expectations that markets will need to become accustomed to slower growth going forward.


Where next for NVDA stock?

NVIDIA shares have experienced a rough ride in early 2022, having lost over one-fifth of their value since the start of the year, and have been trending lower since hitting an all-time high last November.

Sellers managed to push the stock to its lowest level in over three months in January at $208, in-line with the 200-day sma at the time, before buyers re-entered the market. This moving average, which currently sits at $227, should continue to act as a floor for shares, especially given this also acted as a key level of resistance in August and September. A move lower is supported the bearish RSI, which in turn is reinforced by the fact trading volumes over the past 20 days (since hitting that three-month low) have increased to 24.2 million shares daily from the 100-day average of just 18.4 million shares. A break below the 200-day moving average opens the door to the six-week low hit in early October of $197.

On the upside, NVIDIA needs to first break above the 100-day sma at $265 after unsuccessfully testing this level twice last week before it can target the 50-day sma at $273. Above here, shares can start to target $313 before considering a move toward the all-time closing high of $320 set in November.

NVIDIA shares have trended lower since peaking in November 2021


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