Shares of NVIDIA Corporation NVDA soared over 30% in May. The stock gained momentum after the company announced stellar first-quarter fiscal 2017 results on May 12. Also, an encouraging revenue outlook for second-quarter fiscal 2017, backed by solid cash flow and regular innovative product launches, drove NVIDIA’s shares higher.
Most importantly, the stock scaled new highs almost every day since the last earnings announcement except for two trading days – May 17 and May 27.
The company posted earnings (including stock-based compensation but excluding other one-time items) of 39 cents per share for the quarter, up on a year-over-year basis. The Zacks Consensus Estimate was 31 cents.
Moreover, revenues increased 13.4% year over year to $1.305 billion and surpassed the Zacks Consensus Estimate of $1.267 billion. The year-over-year increase was primarily due to higher-than-expected growth in the GPUs gaming platform, high-performance computing, datacenter and Tegra automotive platforms.
The graphic chip behemoth recently unveiled a super-fast graphics chip for deep learning that promises to make a splash in the artificial intelligence (AI) space. During its 2016 GPU Technology Conference, the company introduced Tesla P100, the most advanced accelerator.
Apart from Tesla P100 GPU, the company also introduced its supercomputer — DGX-1 — tailor-made for deep learning. DGX-1 combines two Intel INTC Xeon processors and eight Tesla P100 GPU accelerators with 16GB memory per GPU, capable of 170 teraflops of performance. These product launches will act as a catalyst for the company.
With respect to earnings surprise, this Zacks Rank #3 (Hold) stock has surpassed the Zacks Consensus Estimate in all of the last four quarters with an average surprise of 57.9%.
For the second quarter of fiscal 2017, NVIDIA expects revenues of approximately $1.35 billion (+/-2%). The Zacks Consensus Estimate is pegged at $1.352 billion. Non-GAAP gross margin is expected to be 58% (+/-50 bps). Non-GAAP operating expenses are expected to be approximately $445 million. Non-GAAP tax rate is expected to be 20% (+/-1%).
An encouraging second-quarter outlook and overall healthy prospects resulted in upward estimate revisions for NVIDIA. Over the last 30 days, 12 out of 15 estimates for NVIDIA were revised upward for fiscal 2017. The Zacks Consensus Estimate for fiscal 2017 went up 12.1% (by 17 cents) to $1.58.
Moreover, the stock looks attractive from a valuation perspective. This is because NVIDIA currently trades at a forward P/E of 29.58x as against the industry group average of 128.80x, which signifies a huge upward potential.
Nonetheless, competition from the likes of Intel and QUALCOMM Inc. QCOM remains a near-term headwind.
Stock to Consider
In the broader technology sector, Silicon Motion Technology Corp. SIMO is worth considering, which sports a Zacks Rank #1 (Buy).
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