NVIDIA Corporation NVDA is scheduled to report third-quarter 2018 results on Nov 9.

We expect the company to benefit from growing strength in the artificial intelligence (AI) space. Moreover, the company’s innovative product pipeline along withstrength in gaming and high-end notebook GPUs keep it well positioned.

NVIDIA’s efforts toward autonomous vehicle alsoexhibitits intention to be the largest player in the self-driving and machine learning arena too. We also believe that the higher adoption of NVIDIA’s Tegra processors will act as a catalyst, going ahead.

Let’s dwell deeper and find out the factors influencing the results.

AI Space:  Key Catalyst

NVIDIA is one of the leading players in AI for applications to autonomous driving and also sells its GPUs to Alphabet, Facebook, Microsoft and Amazon for their data centers. The graphics chipmaker possesses both a powerful all-purpose AI-enabled processor and its CUDA software programming platform, which helps build out AI software. Compared withcompetitive products like Alphabet’s GOOGL Google AI chip, analysts believe that NVIDIA’s processor has a larger potential customer base.

“Incumbency matters and Nvidia has a much wider AI/machine learning ecosystem that will be tough to match,” Arya said.

Notably, the company entered into a wide range of partnerships based on its AI technology, namelyBaidu, Foxconn, Inventec, Quanta, Wistron, Volkswagen, Volvo and Autoliv. Demand for NVIDIA’s DGX AI supercomputer also remained high as more organizations are keen on building AI-enabled applications. It has shipped the system to over 300 customers, so far, and more than 1,000 are in the pipeline. Per NVIDIA, Facebook is using its 128 DGX system. With these deal, NVIDIA will be better poise to reinforceits hold in the AI technologies.

It is also worth mentioning that, NVIDIA recently unveiled a new AI supercomputer chip designed for self-driving cars called Pegasus at its GPU Technology Conference (GTC) in Europe. This new technology, Pegasus helps to drive fully autonomous robotaxis which can handle the concept of Level 5 self-driving vehicles and uses NVIDIA’s DRIVE PX 2 platform, trained on deep neural networks. The recent launch is seen as NVIDIA’s determined focus on remaining ahead of its rivals — Intel Corporation INTC and Qualcomm Inc. QCOM — in the driverless car technology space.

NVIDIA continues to be the world’s biggest graphic processing hardware provider for PCs since the past several decades. Recently, the company joined forces with Square Enix to unveil Final Fantasy XV Windows Edition for PC in Gamescom 2017. The collaboration is aimed at bringing an enhanced gaming experience to PCs. This deal is a positive for NVIDIA, as it will help the company gain market share among gaming content developers.

We expect the momentum to continue in the to-be-reported quarter as well, consequently bolstering the top-line performance.

Segments Continue to Outstand

Continuing its earnings streak for the ninth straight quarter, NVIDIA had reported splendid second-quarter fiscal 2018 results, wherein it not only marked a strong year-over-year improvement, but also way came ahead of the Zacks Consensus Estimate.

Segment-wise, revenues from the GPU business jumped 59% year over year to $1.9 billion, driven by strength in GeForce GPUs Gaming revenues and datacenter. The Zacks Consensus Estimate for GPUs is pegged at $1.962 billion, up 15.6% year over year.

Revenues from Gaming GPU were up 52% on a year-over-year basis to $1.19 billion in the last reported quarter. Per the company, strong growth “reflects the vibrant gaming ecosystem, underpinned by continued excitement over our recent launch GPUs and other technologies, great games, and growing interest in e-sports.” The Zacks Consensus Estimate for Gaming is pegged at $1.332 billion.

Additionally, revenues from datacenter came in at $416 million, registering a year-over-year increase of over 2.5 times, mainly fueled by strong adoption of artificial intelligence (AI), deep learning, high-performance computing (HPC), and GRID technologies. The Zacks Consensus Estimate for datacenter is pegged at $460 million.

Tegra processor revenues came in at $333 million, which doubled on a year-over-year basis. The increase was primarily due to better-than-expected growth in Tegra development services. The Zacks Consensus Estimate for Tegra processor is pegged at $375 million, up 55.6% year over year.

Automotive revenues for the quarter came in at $142 million, reflecting an increase of 19% year over year. The Zacks Consensus Estimate for Automotive is pegged at $150 million.

Moving to Professional Visualization, revenues from Quadro increased 10% year over year and came in at $235 million. The increase was mainly owingto elevated demand in real-time rendering tools and mobile workstations. The Zacks Consensus Estimate for Professional Visualization is pegged at $237 million.

NVIDIA Corporation Price and EPS Surprise


NVIDIA Corporation Price and EPS Surprise | NVIDIA Corporation Quote

What the Zacks Model Unveils?

Zacks ESP: NVIDIAcurrently has an Earnings ESP of +1.60%. This is because the Most Accurate estimate is pegged higher at 96 cents, while the Zacks Consensus Estimate is at 94 cents. A favorable Earnings ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: NVIDIA currently carries a Zacks Rank #1 (Strong Buy). It should be noted that stocks with a Zacks Rank #1, 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings. Conversely, stocks with a Zacks Rank #4 or 5 (Sell rated) should never be considered going into an earnings announcement. You can see the complete list of today’s Zacks #1 Rank stocks here.

The combination of NVIDIA’s Zacks Rank #1 and a positive ESP make us reasonably confident of a positive earnings beat.

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