Nvidia Q3 FY2022 Earnings Report Preview: What to Look For

Focus on NVDA data center revenue

Key Takeaways

  • Analysts estimate adjusted EPS of $1.11 vs. $0.78 in Q3 FY 2021.
  • Data center revenue is expected to rise YOY.
  • Revenue is expected to rise, but at slower pace than recent quarters, as demand for semiconductors continues to outpace supply.

Nvidia Corp. (NVDA) last year posted its fastest earnings and revenue growth in recent years, driven by strong demand for semiconductor chips. That demand was fueled largely by a surge in video gaming and cloud computing during the COVID-19 pandemic, pushing Nvidia's stock to new highs in recent months. Those positive trends show no sign of ending soon. Nvidia Chief Executive Officer (CEO) Jensen Huang said last week that he thinks demand for semiconductors will continue to outpace supply through the next year.

Investors will be watching to see if Nvidia can maintain its strong financial performance when it reports earnings on Nov. 17, 2021 for Q3 FY 2022. Nvidia's 2021 fiscal year (FY) ended Jan. 31, 2021, so the company is now in its 2022 fiscal year. Analysts expect adjusted earnings per share (EPS) and revenue to post healthy gains, but at slower rates 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. Analysts expect the company's data center revenue to accelerate from the previous quarter's rapid growth.

Shares of Nvidia have outperformed the broader market over the past year. The stock mostly lagged the market between late November 2020 and late May 2021. But it has outperformed ever since and has dramatically widened its performance gap since the first half of October. Nvidia's shares have provided a total return of 122.4% over the past year, well above the S&P 500's total return of 29.1%.

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

Nvidia Earnings History

Nvidia reported Q2 FY 2022 earnings and revenue that beat analysts' expectations. Adjusted EPS rose 89.9% compared to the year-ago quarter, slowing from the previous quarter's rapid pace. Revenue grew 68.3% year over year (YOY), also slowing from the pace set in Q1. Nvidia said it achieved record companywide revenue during the quarter as well as record revenue in its gaming, data center, and professional visualization businesses.

In Q1 FY 2022, Nvidia's earnings and revenue surpassed consensus estimates. Adjusted EPS increased 103.1% compared to the year-ago quarter, its fastest pace since the first quarter of FY 2021. Revenue expanded 83.8% YOY, marking its fastest pace in at least 19 quarters. Nvidia noted that its data center business continued to expand as companies around the world increase their adoption of artificial intelligence (AI) for various applications.

Analysts expect slower earnings and revenue growth in Q3 FY 2022. Adjusted EPS is expected to rise 52.1% compared to the year-ago quarter, which would be the slowest pace of increase since the third quarter of FY 2020. Revenue is expected to grow 44.4% YOY, the slowest pace since Q1 FY 2021. For full-year FY 2022, analysts expect adjusted EPS to rise 65.5%, slowing slightly from last year's pace of growth. Annual revenue is forecast to expand 54.4%, which would be the fastest pace of growth in at least the past seven years.

Nvidia Key Stats
  Estimate for Q3 FY 2022 Q3 FY 2021 Q3 FY 2020
Adjusted Earnings Per Share ($) 1.11 0.73 0.45
Revenue ($B) 6.8 4.7 3.0
Data Center Revenue ($B) 2.7 1.9 0.7

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 artificial intelligence (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.

Nvidia's data center revenue rose sharply last year amid the pandemic, climbing 124.5% in FY 2021. That was a significant acceleration from the previous year's growth of 1.7% and it was the fastest pace since FY 2018. Growth has so far decelerated through the first half of FY 2022, slowing to a pace of 79.5% YOY in the first quarter and again to 35.1% YOY in the second. However, analysts are expecting growth to reaccelerate in Q3 FY 2022, forecasting revenue for the data center segment to grow 43.2% YOY. For full-year FY 2022, analysts expect the segment's revenue to expand 48.5%, significantly slower than the previous year's rapid pace.

Article Sources
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