NVIDIA Corp. NVDA is moving steadily ahead on the growth trajectory gathering momentum from positive earnings surprise history and solid fundamentals. Also, shares have been trending upward with a positive year-to-date return of over 67%.
An impressive track record of exceeding our earnings expectations in addition to the encouraging fourth-quarter fiscal 2016 revenue outlook, solid cash flows and regular innovative product launches led to the growth.
With respect to the earnings surprise, this Zacks Rank #1 (Strong Buy) stock has surpassed the Zacks Consensus Estimate in three out of the last four quarters with an average surprise of 53.2%.
NVIDIA’s adjusted earnings for third-quarter fiscal 2016 on a proportionate tax basis of 40 cents per share comfortably beat the Zacks Consensus Estimate of 25 cents. Adjusted earnings include stock-based compensation but exclude interest expense related to amortization, other acquisition-related costs and other one-time items.
Revenues increased 6.5% year over year to $1.31 billion and surpassed the Zacks Consensus Estimate of $1.18 billion. The year-over-year increase was primarily backed by stronger-than-expected growth in GTX gaming platform, high-performance computing, cloud and automotive platforms.
Notably, NVIDIA’s focus on GRID platforms can increase GPU adoption in data centers, giving it a competitive advantage. NVIDIA GRID is a powerful GPU-based platform that supports corporate virtualized desktops in data centers, cloud gaming services and design software-as-a-service.
NVIDIA and VMware VMW entered into a strategic alliance to run the NVIDIA GRID technology on VMware Horizon Desktop-as-a-Service (DaaS) platform. This will enrich NVIDIA’s virtualization, automation and cloud-based portfolios. We believe that GRID enterprise virtual graphics, which enhance the visual effects of games, will support revenue and margin growth.
Furthermore, NVIDIA’s innovative product pipeline and strength in gaming and high-end notebook GPUs keep it well positioned, in our view. We also consider the higher adoption of NVIDIA’s Tegra processors to be a catalyst, going forward.
Nonetheless, the persistent decline in PC sales is a concern for NVIDIA’s GPU segment. Competition from the likes of Intel INTC and QUALCOMM Inc. QCOM also remains a near-term headwind.
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