Nvidia Price Target as Earnings Fail to Find Real Consensus
The AI giant will report earnings on Wednesday evening and Wall Street doesn't seem sure what to think.
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Every quarter. It happens very late in the season, despite its oversized potential to impact financial markets upon release. I speak of Nvidia NVDA earnings.
With 96% of S&P 500 companies having already reported their fiscal first quarter financial results, AI-focused, chip-designing giant Nvidia will release the firm's quarterly numbers on Wednesday afternoon after the closing bells stop chiming down at 11 Wall Street and up at Times Square in New York City.
For the three-month period ended in late April, Nvidia is expected to have produced an adjusted EPS of $0.75 on revenue of roughly $43.25 billion. Performance like that would be good for earnings growth of 23% on revenue growth of 66%. While sales growth of 66% is considered better (actually much better) than outstanding. However, this will also be a fifth consecutive quarter of decelerating year-over-year top line growth.
Is there really a consensus though? Of the 40 or so sell-side analysts that cover Nvidia, six have increased their earnings estimates since the start of the quarter to be reported, while eight have decreased those estimates. The rest? Guess some of them are probably confident. The rest may just be like deer in the headlights.
Not a Problem
This decelerating year-over-year growth is not a negative. This is simply the law of large numbers as this is now the eighth quarter to be reported since Nvidia simply shocked the world with that first AI-inspired quarterly release for its fiscal second quarter of 2023. Of course, Nvidia will not be the only high-profile name reporting on Wednesday evening. Salesforce CRM will release its digits nearly simultaneously, likely putting an AI-theme on that evening's financial news coverage.
The stock entered the week trading at 31-times 12 months' forward-looking earnings. This, in my opinion, is not expensive. Though the S&P 500 currently trades at 21 times, and the tech sector currently trades at 27 times, there is almost nowhere else where investors can find this kind of sustained growth, with numbers this large. Microsoft MSFT still trades at 33-times forward-looking earnings despite six consecutive quarters of sub 15% sales growth.
Awesome Fundamentals
Yes, the firm has had a couple of hiccups thrown its way. That said, over the weekend, Nvidia announced a new China-legal AI-capable chip, so that the firm will not lose that market in its entirety. As of the quarter ended in late January, Nvidia had generated operating cash flow of $64.089 billion over the trailing 12 months and free cash flow of $60.853 billion over that same period. The firm had repurchased $40.636 billion in common stock over that year while paying out $834 million in cash dividends to shareholders.
The firm ended that quarter with a cash position of $43.21 billion, inventories of $13.38 billion and long-term debt of $8.463 billion. Nvidia had no shorter-term debt on the books. The firm's current and quick ratios stood at 4.44 and 3.67, respectively, which is simply outstanding.
While this is all very nice sounding, and the firm has developed a replacement chip for China, readers should remain cognizant that in mid-April, in response to the tightening of rules regarding what could be exported to China by President Trump, the firm did announce its expectations to take a $5.5 billion charge for these results.
The Chart
Readers will see that NVDA has developed a cup pattern stretching from mid-February to May 21. The cup has added a small handle with a $137.40 pivot. In response to these earnings, that handle could develop more deeply, which would be a positive as long as the weakness is caught at the stock's 200- or 50-day SMAs. Nvidia's reading for relative strength and its daily MACD are both still postured quite bullishly without appearing to be technically overbought.
Of course, a push past pivot without adding a deeper handle is also welcome. In short, a reaction in either direction can be taken as a positive as long as no technical damage is done. Right now, according to options markets, implied volatility in response to these earnings is running at about 8%. On the downside, that would put the stock halfway between the 200- and 50-day SMAs.
Nvidia (NVDA)
Target Price:$165
Pivot: $137
Add: Down to 50-day SMA
Panic: Loss of 50-day SMA.
At the time of publication, Guilfoyle was long NVDA and MSFT equity.
