NVIDIA Smokes Earnings And The Street Has An Aneurysm Of Stupidity

NVIDIA has been firing on all cylinders recently. The company has been crushing it with respect to its core markets and products in PC graphics, silicon engines for autonomous self-driving cars and AI accelerators. Nowhere was this strong performance more on display than during the company’s Q2 earnings results, which came out after the closing bell yesterday.

NVIDA reported that Q2 revenue rose 56 percent to $2.23 billion compared to the same period last year. Revenue was also up 15 percent sequentially. GAAP earnings per diluted share rose 124 percent year-over-year (YoY) to $0.92, while non-GAAP earnings were up 91 percent YoY to $1.01. Operating income and net income were up 117 percent and 123 percent to $688 million and $583 million respectively (on a GAAP basis). Gross margin was also a healthy 58.4 percent.

Jen Hsun Huang
NVIDIA CEO Jensen Huang

More importantly, all of NVIDIA’s major product segments were up (some dramatically) YoY. Here’s a breakdown of its sector performance on a revenue basis compared to the same period last year:

  • Gaming: up 52 percent
  • Professional Visualization: up 10 percent
  • Data Center: up 175 percent
  • Automotive: up 19 percent

“Adoption of NVIDIA GPU computing is accelerating, driving growth across our businesses,” said Jensen Huang, founder and chief executive officer of NVIDIA. “Datacenter revenue increased more than two and a half times. A growing number of car and robot-taxi companies are choosing our DRIVE PX self-driving computing platform. And in Gaming, increasingly the world’s most popular form of entertainment, we power the fastest growing platforms – GeForce and Nintendo Switch.”

In spite of the seemingly knockout Q2 performance, shares of NVDA were battered in the aftermath of its earnings report. This was despite the fact that the aforementioned GAAP earnings came in at $0.92 compared to a consensus estimates of $0.70 per diluted share. NVIDIA shares had already fallen over 7 percent yesterday to $164.74 on an overall softness in the tech sector. But as of opening bell this morning, NVIDIA shares are down another 5 percent to $156.01 despite the clearly bullish execution of the company, its products and earnings performance.

nvidia drive px xavier 1

So why all the negativity? Apparently, investors were looking for a “perfect” quarter, and NVIDIA didn’t deliver. In this instance, investors felt that NVIDIA didn’t quite deliver the goods with respect to quarter-over-quarter data center revenue performance. They also believe that part of NVIDIA’s strong quarterly performance came from crypto miners looking to gobble up GPUs for Ethereum, while not enough businesses were buying the company’s high-end (and high-margin) AI accelerators. Except, we all know gamers have been buying GeForce 10 cards and Nintendo Switch systems by the palette load as well. 

"Our sense is that investors are disappointed in the datacenter quarter-over-quarter deceleration and view crypto upside as low quality," writes Jefferies analyst Mark Lipacis. "What we believe is not well understood is that in contrast to new gaming GPUs, which users buy and use instantaneously, new datacenter GPUs need to be tested and qualified before being scaled into datacenter-applications."

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Raymond James Financial analyst Chris Caso isn’t so swayed by such negativity with regards to NVIDIA’s earnings, writing, “There’s nothing in the report that changes our mind regarding strong datacenter growth going forward, and numbers do move meaningfully higher on GPU estimates, thus helping the stock’s valuation.”

Through Thursday, NIVDIA has risen 176 percent over the past year, making it the #1 performer on the S&P 500. With the kind of numbers and performance the company posted as a whole yesterday, you would think that bullish outlook would continue but apparently analysts and the street decided to view things in an alternate reality not based in fact, but rather some sort of impaired state WTF.