Shares of NVIDIA Corporation NVDA hit a new 52-week high of $34.98 on Mar 28, eventually closing at $34.83. The stock has delivered a one-year return of 62.2% and a year-to-date return of 5.7%. The average trading volume for the last three months aggregated approximately 9,515K.
What is Driving the Stock Upward?
NVIDIA’s shares have been on the rise ever since the company declared better-than-expected fourth-quarter 2016 results on Feb 17, 2016. Also, an encouraging first-quarter fiscal 2017 revenue outlook, solid cash flows and regular innovative product launches drove NVIDIA shares higher.
The company posted earnings of 35 cents per share for the quarter, which beat the Zacks Consensus Estimate of 32 cents.
Revenues not only increased 11.9% year over year to $1.401 billion but also surpassed the Zacks Consensus Estimate of $1.311 billion. The year-over-year increase was primarily due to better-than-expected growth in GPUs gaming platform, high-performance computing, datacenter and Tegra automotive platforms.
With respect to the earnings surprise, this Zacks Rank #2 (Buy) stock has surpassed the Zacks Consensus Estimate in three out of the last four quarters with an average surprise of 49.5%.
Over the last 60 days, 11 out of 13 estimates for NVIDIA were revised upward for the current quarter and for fiscal 2017. The Zacks Consensus Estimate for the current quarter increased 10.7% (3 cents) to 31 cents and that for fiscal 2017 went up 4.5% (6 cents) to $1.40.
For the first quarter of fiscal 2017, NVIDIA expects revenues of about $1.26 billion. This puts the company’s expectations in line with our current consensus estimate. Non-GAAP gross margin is expected to be in the range of 57.2% to 57.5%. Adjusting operating expenses are expected to be approximately $445 million.
The company is in the process of gaining market share among gaming service providers, thereby strengthening its position in workstation-based gaming services in supercomputing segments. The advanced gaming cards also add value to PC manufacturers. The strong lineup of advanced graphics cards such as its ‘GeForce GTX 780 Ti’, ‘Maxwell’, the GeForce GT 730, GeForce GT 740 and the new GeForce GTX 750, GeForce GTX 800M, GeForce GTX 980 and 970 have made it a favorite graphics card provider among PC makers.
Going further, sales of the company’s GeForce graphics cards, popular with DIY computer gamers, rose 24.5% to $810 million in the quarter. This year’s holiday season was marked by several blockbuster game releases, including Call of Duty: Black Ops III, Fallout 4, and Star Wars Battlefront, and gamers scooped up NVIDIA’s products to upgrade their hardware.
“GeForce sales are driven by the launch of great gaming titles and that again proved true this holiday season,” said NVIDIA’s CFO Colette Kress.
According to company sources, worldwide PC gaming is growing at a CAGR of 10%. We believe that strong demand for PC gaming will be a tailwind for the company’s financial performance. The company has always generated substantial revenues from its cards because of their significantly higher functionality.
Nonetheless, competition from the likes of Intel INTC and QUALCOMM Inc. QCOM remains a near-term headwind.
Stock to Consider
In the broader technology sector, Lexmark International Inc. LXK is worth considering, sporting a Zacks Rank #1 (Buy).
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