NVIDIA Corp (NVDA)

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Nvidia Earnings Preview: 3 Keys to Watch
By: TheStreet | November 14, 2019

Data center revenue may be the most important ingredient to a solid quarter for Nvidia.

Nvidia (NVDA - Get Report) reports earnings after the closing bell Thursday and the several keys to the earnings have become clear to analysts and investors alike.

First off, analysts polled by FactSet are looking for total revenue for the third quarter of $2.921 billion and earnings per share of $1.58.

Perhaps the biggest key is data center revenue.

Data Center

"Investors are likely to focus most on the data center results/trajectory (with recovery hopes on cloud pickup & Intel's results)," wrote Alliance Bernstein analyst Stacy Rasgon in a note.

Data center chip pricing has been a question in 2019 and investors have been hoping to see a recovery in the revenue of chip makers supplying data centers have. Intel (INTC - Get Report) has been a poster child for this. Investors will also likely listen to management's comments on cloud spending going forward, which will indicate the future strength of data center revenue.

Analysts are looking for revenue for the segment of $754 million.

Last quarter, Nvidia posted data center revenue of $655 million, missing estimates of $669 million. Analysts have said Nvidia must show the ability to beat estimates on data center sooner rather than later. Revenue in that business is expected to grow roughly 30% for the next several years, making it crucial for the overall growth of the company. "This is what will likely drive the stock from here," Rasgon said.

Valuation

It's hefty.

The stock trades at roughly 29 times forward one-year earnings, a multiple that has expanded of late. Some analysts say the multiple is too hot, while others say it's around fully valued. The stock is up about 50% year-to-date. With a recovery in data center weakness arguably built into estimates and investors buying up the stock, the earnings may have to be especially impressive to move the stock higher.

Wedbush Securities analyst Matt Bryson recently told TheStreet the stock can move higher on earnings estimates moving up, but that the multiple is unlikely to expand from here.

Mellanox Acquisition

Nvidia is buying Mellanox (MLNX - Get Report) for $6.9 billion, but the Chinese government hasn't yet issued regulatory approval.

Look out for management's commentary on that.

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