NVIDIA Q2 preview: Where next for NVDA stock?

When will NVIDIA release Q2 earnings?

NVIDIA is scheduled to release second quarter earnings after US markets close on Wednesday August 24.

NVIDIA Q2 earnings consensus

NVIDIA has already revealed that revenue will come in around $6.7 billion in the second quarter, up from $6.5 billion the year before. Consensus figures show Wall Street is looking for adjusted EPS of $0.51, which would be down from the $1.04 reported the year before.

NVIDIA Q2 earnings preview

NVIDIA became the latest chipmaker to signal a slowdown is on the cards after warning earlier this month that revenue in the latest quarter would come in at just $6.7 billion, falling far short of its $8.1 billion target.

The company blamed the gaming market as sales suffer in the tough macroeconomic environment. NVIDIA has warned that gaming revenue will be down 44% from the previous quarter, suggesting the shift in demand has been swift.

That follows on from disappointing sales figures out from the likes of Electronic Arts, Take-Two Interactive and Activision Blizzard in recent weeks and has also contributed to tempered demand for other semiconductor makers like AMD, which has also been hit by the slowdown of PC sales.

‘Our gaming product sell-through projections declined significantly as the quarter progressed,’ said founder and CEO Jensen Huang earlier this month. ‘As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our Gaming partners to adjust channel prices and inventory.’

Sales of NVIDIA’s chips used in data centres hit another record in the second quarter, although investors will be wary that this too missed NVIDIA’s expectations and that growth has continued to slow, partly because of ongoing supply chain disruption. This still accounts for over half of its total revenue and remains the bright spot for now, so investors will be hopeful that demand can remain healthy.

Below is an outline of what to expect in terms of revenue from each market in the third quarter:

(Source: NVIDIA)

NVIDIA’s profitability has also taken a huge hit, with its gross margin set to come in around 43.7% in the third quarter, which will be the lowest on record for years. The company had originally targeted around 65.1%. Analysts believe this will be temporary and rebound back to normal levels in the current quarter.

‘We believe our long-term gross margin profile is intact. We have slowed operating expense growth, balancing investments for long-term growth while managing near-term profitability. We plan to continue stock buybacks as we foresee strong cash generation and future growth,’ said CFO Colette Kress.

The outlook will be closely watched considering NVIDIA is expecting challenging conditions in the gaming market to persist in the third quarter, which has prompted it to cut prices. Wall Street believes NVIDIA can deliver $7.3 billion in sales (which would be up 2.9% from the year before) and that its gross margin can bounce back to 63%.

Notably, analysts believe NVIDIA is on course to grow annual sales by 13.5% this financial year and that adjusted EPS will fall over 5% as it comes up against the tough comparatives seen last year, when earnings exploded thanks to a boom in demand for tech.

Where next for NVDA stock?

NVIDIA shares have been sandwiched between moving averages for over a month, with the 50-day (at $169.50) holding as a floor while the 100-day figure (at $185.70) has proven a tough ceiling to crack. The results this week have the potential to provide the catalyst needed for it to breakout of this range, although the pre-announcement has reduced the chance for surprises.

The stock can target $192 if it can break above the 100-day moving average before eyeing a larger jump toward $212, which provided a key level of support throughout the first four months of 2022.

The stock risks slipping back toward $157.80 if the stock slips below the 50-day moving average, which must hold to avoid bringing the one-year low of $140.55 hit in May back into play.

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