Thursday, August 20, 2020

Investors Chip Away at Nvidia Stock Despite Record Revenues

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News shaping
the markets today

     

What’s happening: Shares of Nvidia Corp headed south in extended trading on Wednesday, despite the videogame chipmaker exceeding market expectations for the fiscal second quarter.

What happened: Nvidia was among the main beneficiaries of the surge in PC gaming demand in the second quarter.

Despite the chipmaker announcing record revenues for the second quarter and projecting higher sales for the third, the stock declined in after-hours trading, mainly on profit taking.

How were the results: The Santa Clara, California-based company reported healthy growth in both sales and earnings, exceeding estimates for both metrics.

  • Revenues expanded to $3.87 billion, from $2.58 billion in the same quarter last year, beating the consensus view of $3.65 billion.
  • Net income came in at $622 million, or 99 cents per share, up from $552 million, or 90 cents per share, in the year-ago quarter.
  • Adjusted earnings surged to $2.18 per share, from $1.24 per share last year, significantly exceeding the consensus estimate of $1.97 a share.

Why it matters: This was the first full quarter in which Nvidia booked revenues from its acquisition of Mellanox Technologies, which was completed in April.

Nvidia announced that despite the strong performance of its gaming unit, its data centre business generated much higher quarterly revenues for the first time.

Data centre revenues, which contributed around 45% of overall sales, surged 167% to $1.75 billion. Meanwhile, gaming revenues grew 26% to $1.65 billion. Management expects new gaming chips to reverse this trend and generate record sales for the company in the current quarter.

“Despite the pandemic's impact on our professional visualization and automotive platforms, we are well positioned to grow, as gaming, AI, cloud computing and autonomous machines drive the next industrial revolution around the world,” CEO Jensen Huang said during the earnings call.

For the third quarter, the company projected record revenues of $4.40 billion, plus or minus 2%, exceeding the prior consensus estimate of $3.97 billion.

How shares performed so far: Shares of Nvidia slipped 2.2% to $475.01 in after-hours trading, after falling 1% during the regular session on Wednesday. This may have been driven by profit taking, as the stock has been on a roll, almost tripling in value from its March lows.

What to watch: Investors remain bullish and expect Nvidia to continue beating analyst estimates. Any disappointment on this front may expert pressure on the stock. Moreover, analysts believe there is now more downside than upside to the stock, with Nvidia’s market capitalisation surpassing that of archival Intel.

The Markets Today

     

The US dollar will be in focus today, ahead of a basket of economic reports from the country.

Context: The US dollar moved higher in late trading on Wednesday, following the release of minutes from the Federal Reserve’s July meeting.

Details: The Federal Open Market Committee on Wednesday released minutes from its latest meeting, reiterating their stand to continue with their aggressive measures to provide support to the economy. Federal Reserve officials expressed concern around the recovery path of the economy from the coronavirus-led crisis.

Investors remained worried about the stalemate between the Congress and the White House over the new covid-19 relief package.

The US dollar index, which measures the currency’s performance versus six major rivals, rose 0.7% to 92.89 on Wednesday.

The euro fell to $1.1856 versus the greenback, while the British pound also declined to $1.3115 in the previous session. The US dollar also recorded gains versus the Japanese yen and Swiss franc on Wednesday.

What to watch: Traders await data on initial jobless claims and the Philadelphia Fed manufacturing index from the US. Jobless claims are expected to increase by 925,000 in the latest week. The Philadelphia Fed manufacturing index, which fell to 24.1 in July, is expected to decline to 21 in August.

Markets will continue to monitor the covid-19 numbers, with total cases exceeding 5.5 million in the US.

Other Markets: European indices were trading lower at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index down by 1.3%, 1.4% and 1.3%, respectively.

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Futures at 0400 (GMT)

What else to watch today

     

UK CBI industrial trends orders, Turkey’s total motor vehicles production, gross foreign exchange reserves and Central Bank of Turkey’s interest rate decision, Canada’s ADP employment change, Russia's jobless rate, retail trade and gross domestic product, Argentina’s economic activity index as well as the US EIA’s natural gas stockpiles.