Nvidia Q3 earnings: is the stock price set to surge?

When is Nvidia’s earnings date?

NVIDIA Corp (All Sessions) reports third-quarter (Q3) earnings on 14 November.

Nvidia earnings – what does Wall Street expect?

Nvidia is expected to report earnings of $1.58 per share for Q3, down 14.3% year-on-year (YoY). Meanwhile, revenue is expected to fall 8.6% compared to a year earlier, to $2.91 billion. The firm has beaten estimates in seven of the last eight quarters for both headline earnings and revenue. Earnings bottomed out in the final quarter of its previous financial year, and the preceding two quarters have seen steady growth in earnings per share (EPS).

Those looking at Nvidia will take Intel as their template. Intel reported its best quarter ever in the most recent update, with the data group seeing strong demand and driving this improvement. The previous quarter witnessed Nvidia’s first improvement in revenue from data centres in three quarters, with further interest expected in this quarter.

As well as the overall revenue improvement for the quarter-on-quarter (QoQ) figure, which while it is expected to decline by 9% over the year is an improvement on Q2’s 17% annual decline, the firm also expects gross margins to expand by 160 basis points (bps), as it sells more high-performance chips.

At 31.3 times forward earnings, Nvidia is more expensive than its five-year average of 28.8. Unsurprisingly, at the beginning of this year it was relatively cheap, falling to one-standard deviation below the aforementioned average, at 18.3. This was significantly cheaper than the 2017 and 2018 peak of 46.7 times earnings. Unsurprisingly, with a forward price-to-earnings (P/E) ratio of over 30, Nvidia remains a growth stock rather than one for income investors, with a yield of just 0.3%.

How to trade Nvidia’s earnings

At present, of the 39 analysts covering Nvidia, 27 have ‘buy’ recommendations, while there are eight ‘holds’ and four ‘sells’. The median target price is $190.42, around 9% below the current price of $209.61.

Volatility in Nvidia stock has climbed steadily ahead of the earnings, with the 14-day average true range (ATR) of 618 rising from a low in mid-September of around 550. This in itself is a significant rise on the late-July figure of 470. The average move on results day is 6.1%, while current options pricing suggests a move of 7.1%. Q2 results witnessed a rally of 7.3% for the stock price.

Nvidia’s stock price – technical analysis

After a shaky start to the year Nvidia stock has found its momentum. The stock rallied from the December low but fell heavily in April and May. However, since then it has established a series of higher highs and higher lows, clocking up a new higher high just this week just below $212. Any post-results pullback would likely be another buying opportunity unless it falls back below $170.

Nvidia powers ahead

Earnings are picking up, while the decline in revenues is slowing, and the chart points to a fresh bullish trend. As a result, Nvidia is one to watch into year-end, and any post-results weakness could represent a buying opportunity for a stock that seems to have put its problems behind it.