Nvidia Q1 FY 2022 Earnings Report Preview: What to Look For

Focus on NVDA gross margin

Key Takeaways

  • Analysts estimate adjusted EPS of $3.30 vs. $1.80 in Q1 FY 2021.
  • Gross margin is expected be flat YOY, but near historically high levels.
  • Revenue is expected to rise amid strong demand for gaming and cloud computing.

Nvidia Corp. (NVDA) has enjoyed soaring profits and revenue amid the surge in gaming and cloud computing due the pandemic. The cryptocurrency boom also has fueled demand for Nvidia's semiconductor chips, which are used by digital currency miners. But this also created a major potential problem for the company. Soaring demand for computing technology has led to a global chip shortage, leaving Nvidia vulnerable. That's because it's a fabless chipmaker that outsources chipmaking to other companies.

Investors will closely watch how these forces are affecting Nvidia's top and bottom lines when the company reports earnings after the market close on May 26, 2021 for Q1 FY 2022. Nvidia's 2021 fiscal year (FY) ended Jan. 31, 2021. Analysts expect strong growth in adjusted earnings per share (EPS) and revenue.

Investors will also be focused on Nvidia's gross margin, a key metric for sellers of commodities that provides an indicator of how much profit is being generated from each dollar of sales. Companies that keep costs low can generate higher margins as they compete on price. Analysts are expecting essentially no change in the company's gross margin compared to the year-ago quarter.

Shares of Nvidia have outperformed the broader market over the past year. The stock's performance gap with the rest of the market began to widen in late June of last year. While its volatility has picked up in recent months, the stock has been on an upswing over the past two weeks. Nvidia's shares have provided a total return of 79.7% over the past 12 months, well above the S&P 500's total return of 40.0%. Nvidia recently announced a four-for-one stock split, which would make ownership more accessible to investors if approved.

One Year Total Return for S&P 500 and Nvidia
Source: TradingView.

Nvidia Earnings History

Nvidia's stock initially rose following the company's Q4 FY 2021 earnings report, then continued to decline in the following weeks. Adjusted EPS rose 64.3% compared to the year-ago quarter. Revenue grew 61.1%, marking the fastest pace of growth since Q1 FY 2019. Nvidia said that its gaming and data center platforms posted record revenue for both the quarter and all of FY 2021.

In Q3 FY 2021, adjusted EPS rose 63.2%. But even that robust pace was the slowest in the past four quarters. Revenue grew 56.8% compared to the same three-month period a year ago. The company's results were driven by record gaming and data center revenue. Nvidia also highlighted its agreement to acquire U.K.-based semiconductor design firm Arm Ltd., which was first announced on Sep. 13, 2020.

Analysts expect the strong growth in both adjusted EPS and revenue to continue in Q1 FY 2022. Adjusted EPS is expected to rise 83.1%, which would be the fastest growth since Q1 FY 2021. Revenue is expected to rise 75.5%, which would make it the fastest pace of growth in at least 19 quarters. For full-year FY 2022, analysts expect adjusted EPS to rise 37.2% as revenue increases 34.4%, slowing from last year's robust growth.

Nvidia Key Stats
  Estimate for Q1 FY 2022 Q1 FY 2021 Q1 FY 2020
Adjusted Earnings Per Share ($)  3.30 1.80 0.88
Revenue ($B) 5.4 3.1 2.2
Gross Margin (%) 65.8  65.8 59.0

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focused on Nvidia's gross margin, a key metric that is calculated as total revenue minus cost of goods sold (COGS). It is usually then divided by total revenue to express it as a percent, allowing for easy comparison between different time periods or companies. Semiconductors are a commodity good, meaning that they are, to a large extent, fungible and their prices highly cyclical. Seller's of such goods have limited pricing power, which means keeping costs low in order to maximize profits when times are good is essential.

Nvidia's annual gross margin has consistently trended higher in every year since at least FY 2017. From 56.8% in FY 2016, annual gross margin rose to 65.7% in FY 2021. In each of the past four quarters, gross margin has been between 65-66%. Analysts expect quarterly gross margin in Q1 FY 2022 to be near the higher end of that range, remaining basically unchanged from the year-ago quarter. For full-year FY 2022, analysts expect annual gross margin to rise slightly to 66.0%, which would be the highest level in at least the past seven years.

Article Sources
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