Nvidia Q1 FY2023 Earnings Report Preview: What To Look For

Nvidia Corp. (NVDA) is coming off two years of soaring profits and revenue, much of it spurred by the rise in online activity during the COVID-19 pandemic. The shift to online entertainment and remote work during the pandemic helped fuel demand for both Nvidia's gaming and data center products. Now, Nvidia says it is focusing on building on that growth by investing in new products, including on chips aimed at expanding its lead in artificial intelligence (AI).

Investors will be watching to see if Nvidia can maintain its growth when the company reports earnings on May 25, 2022 for Q1 FY 2023. Nvidia's latest fiscal year (FY) ended Jan. 30, 2022. Analysts expect adjusted earnings per share (EPS) and revenue to grow, but at a slower pace than in recent quarters.

Investors will also be focusing on Nvidia's data center revenue, a key metric of sales generated by a rapidly-growing segment of the company's business. Nvidia makes chips used by data centers. Demand for data center services has increased amid the pandemic, sparking a rise in demand for Nvidia's chips. In Q1, Analysts expect growth in the company' data center revenue to accelerate for the third straight quarter. Also, they expect Nvidia's annual data center revenue in FY 2023 to surpass gaming revenue for the first time.

Shares of Nvidia have outperformed the broader market over the past year. The stock soared throughout October and November of last year, widening its performance gap with the rest of the market. However, it has since shed all of those gains and the performance gap with the market has narrowed significantly. Nvidia's shares have provided a total return of 8.3% over the past year, above the S&P 500's total return of -7.1%.

Nvidia Earnings History

Nvidia reported Q4 FY 2022 earnings results that beat analysts' expectations. Adjusted EPS rose 69.8% compared to the year-ago quarter. Revenue grew 52.8% year over year (YOY). Growth for both earnings and revenue accelerated from the previous quarter's pace. The company said that it was seeing strong demand for its computing platforms, with record revenue achieved across its gaming, data center, and professional visualization platforms.

In Q3 FY 2022, Nvidia's earnings and revenue beat consensus estimates. Adjusted EPS rose 60.9% YOY, the slowest pace since earnings declined in the third quarter of FY 2020. Revenue expanded 50.3% compared to the year-ago quarter, its slowest pace since the second quarter of FY 2021. The company said that demand for its AI products was soaring and that it achieved record revenue in its gaming, data center, and professional visualization businesses.

Analysts expect earnings and revenue growth to decelerate in Q1 FY 2023. Adjusted EPS is expected to increase 41.7% YOY, its slowest pace in ten quarters. Revenue is projected to grow 43.5% YOY, marking its slowest pace since Q1 FY 2021. For full-year FY 2023, analysts expect adjusted EPS to rise 26.7%. Annual revenue is forecast to grow 28.9%. It would be the slowest annual pace of growth for either metric since both declined in FY 2020.

^{Source: Visible Alpha}

The Key Metric

As mentioned above, investors will also be focusing on Nvidia's data center revenue. Nvidia has traditionally specialized in making chips for the gaming and graphics industry, being a pioneer in the development of graphics processing units (GPUs). It turns out that the robust computational capabilities employed by GPUs to power video games and graphics software are also well-suited for technologies like AI and machine-learning. Both of those technologies are increasingly important for the rapidly growing data center market. Demand for remote computing power increased substantially during the pandemic as more and more people began working from home and businesses were forced to shift certain operations online. That development has helped to boost demand for Nvidia's chips used by data centers. Increasing focus on the metaverse, a virtual world built on technologies like VR and augmented reality (AR), is likely to create additional sources of demand for the company's data center chips.

Nvidia's data center revenue has grown rapidly in recent years. The company generated about $3.0 billion in data center revenue in FY 2020, a bit more than half as much revenue generated by the company's gaming segment. But data center revenue has more than tripled in just two years. Nvidia reported annual data center revenue of $10.6 billion in FY 2022. The pandemic boosted sales in FY 2021 by as much as 124.5%. Data center revenue growth slowed in FY 2022 to 58.5%, with quarterly growth slowing to a YOY pace of 35.1% in Q2 FY 2022. However, it has been accelerating since, growing at a pace of 54.5% YOY in Q3 and 71.5% YOY in Q4. Analysts expect data center revenue growth to accelerate to 76.1% YOY in Q1 FY 2023. For full-year FY 2023, analysts expect data center revenue to expand 48.4% to $15.7 billion. That would eclipse the $14.8 billion of gaming revenue projected for the year.