Nvidia Q4 FY2022 Earnings Report Preview: What to Look For

Nvidia Corp. (NVDA) has seen its profits and revenue soar in the past two years, turning it into one of the world's biggest and most valuable computing companies. But Nvidia's very size has become an obstacle to growth. The Federal Trade Commission (FTC) recently cited the company's size in its lawsuit seeking to block the largest semiconductor merger in history: Nvidia's planned $40 billion acquisition of Arm, the U.K.-based chip design company. Nvidia terminated the deal last week in the face of the FTC lawsuit and other regulatory challenges.

Investors will watch to see if Nvidia, which makes chips used by gamers and data centers, can maintain its recent strong financial performance when it reports earnings on Feb. 16, 2022 for Q4 FY 2022. Investors also will focus on how Nvidia plans to maintain rapid growth long term without the benefit of Arm. Nvidia's fiscal year (FY) ended Jan. 30, 2022. Analysts expect both adjusted earnings per share (EPS) and revenue to rise at a robust pace, but continue slowing from the rates of growth posted 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 for the second straight quarter in a row.

Some of Nvidia's strong growth over the past few years has also been fueled by the cryptocurrency boom. The computing power of GPUs has made them ideal processors for the kinds of computations performed by cryptocurrency miners. The boom has heightened demand for Nvidia's chips. However, the recent crash in cryptocurrency prices this year could make mining less profitable and reduce some of the demand for Nvidia's chips.

Shares of Nvidia have outperformed the broader market over the past year. The stock had been underperforming between late February 2021 and late May 2021 before it began to break out and pull ahead of the market. It has outperformed ever since, reaching a peak outperformance gap in late November before shedding some gains in recent months. Nvidia's shares have provided a total return of 58.4% over the past year, well above the S&P 500's total return of 11.9%.

Nvidia Earnings History

Nvidia reported Q3 FY 2022 earnings results that beat analysts' expectations. Adjusted EPS rose 60.9% compared to the year-ago quarter while revenue grew 50.3% to a new quarterly record. While both the top and bottom lines grew at a robust pace, their growth continued a deceleration trend begun in the previous quarter. 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.

In Q2 FY 2022, Nvidia's earnings and revenue surpassed consensus estimates. Adjusted EPS rose 89.9% year over year (YOY), slowing from the previous quarter's rapid pace. Revenue expanded 68.3% compared to the year-ago quarter, also slowing from a robust pace set in the previous quarter. Nvidia said that it launched its Omniverse platform, which uses virtual reality (VR) to simulate physically realistic worlds.

Analysts expect both adjusted EPS and revenue to grow in Q4 FY 2022, but to continue their slowing trend. Adjusted EPS is expected to increase 57.8% YOY, which would be the slowest pace of growth since Nvidia reported a decline in adjusted EPS in Q3 FY 2020. Revenue is expected to expand 48.4% YOY, its slowest pace since the first quarter of FY 2021. For full-year FY 2022, analysts expect adjusted EPS to increase 73.9%, which would be its fastest pace since FY 2017. Annual revenue is forecast to rise 60.0%, which would be its fastest pace in at least seven years.

^{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 rose sharply in FY 2021 amid the pandemic, climbing 124.5%. That was a significant acceleration from the previous year's growth of 1.7% and it was the fastest pace since FY 2018. The second quarter of FY 2021 saw data center revenue grow as fast as 167.5% YOY. It then began to decelerate over the next four quarters, slowing to a pace of 35.1% YOY in the second quarter of FY 2022. But it started to accelerate again in Q3 FY 2022, rising 54.5% YOY. Analysts expect data center revenue to continue accelerating in Q4 FY 2022, rising 66.3% YOY. For full-year FY 2022, analysts expect annual data center revenue to rise 57.0%. That would be a significant slowdown from the previous year's rapid pace, but still the second-fastest pace of growth since FY 2018.