NVIDIA (NASDAQ: NVDA) had an excellent start in the calendar year 2021, with the shares of the video card specialist jumping more than 14% in the first weeks of the new year.
The company’s impressive stock market performance may gain further momentum next week when it releases the results for the fourth fiscal quarter of 2021, which ended on January 31, 2021. Let’s see why.
NVDA data by YCharts
NVIDIA is prepared for explosive profits and solid guidance
Wall Street analysts expect NVIDIA to deliver $ 2.80 per share in earnings on revenue of $ 4.82 billion. The numbers are almost in line with the midpoint of the company’s revenue guidance (issued in November) of $ 4.80 billion and an estimated profit of $ 2.79 per share.
Investors should remember that analysts originally expected NVIDIA to earn $ 2.54 per share in adjusted earnings over $ 4.42 billion in revenue. The chip maker set the standard much higher when it released its third quarter fiscal report in mid-November.
The midpoint of NVIDIA’s guidance range indicates that its fourth quarter tax revenue would increase 54% year over year, while earnings would increase 48%. But don’t be surprised to see NVIDIA exceed your own expectations, thanks to the high demand for its video cards. The RTX 30 series graphics cards that NVIDIA launched a few months ago are difficult to find thanks to their impressive price and major improvements over previous generation cards.
NVIDIA’s CFO, Colette Kress, recently pointed out that the demand for its GPUs (graphics processing units) for games is “off the charts”. Supply levels are expected to remain slim during the company’s first fiscal quarter, which ends in April, according to Kress. Component shortages are also hampering supply, but NVIDIA is reportedly in a better position on that front compared to its rival Advanced micro devices (OMG).
Image source: Getty Images
In addition, NVIDIA is trying to alleviate the shortage of video cards by increasing the production of older generation chips. Quoting an NVIDIA executive, PCWorld reports that the company is witnessing an “extremely high” demand, which led it to increase the production of two popular boards – the RTX 2060 and the GTX 1050 Ti.
Consumers won’t have to break the bank to buy these cards, as the RTX 2060 is priced at $ 350, while the 1050 Ti is much more affordable for $ 140. These cards are equipped with GDDR5 memory, which allows the NVIDIA work around the lack of GDDR6 memory used in RTX 30 cards.
As such, NVIDIA may have taken more market share from AMD in the last quarter. The increase in older but popular GPUs could help NVIDIA increase the pressure on its archrival this quarter, and this could lead to better-than-expected guidance.
The data center catalyst
The data center business, in turn, is slated to deliver another highly successful performance, thanks to solid demand from cloud service providers.
NVIDIA has increased the production of its data center servers and recently started shipping its A100 GPUs to server partners. The A100 turned out to be an extremely popular data center GPU, with a number of large cloud companies lining up to buy it due to the huge performance boost it offers over its predecessor.
Not surprisingly, demand for A100 GPUs reportedly exceeded supply last year. An increase in production bodes well for NVIDIA data center revenue, which accounted for 40% of its revenue in the third fiscal quarter and recorded a massive jump of 162% year over year.
Altogether, NVIDIA is in favorable final market conditions in its quarterly report, scheduled for release on Wednesday, February 24th. The huge demand for graphics cards used in video games and data centers, coupled with NVIDIA’s dominant market share, should help it deliver a quarter of hitting and rising and adding fuel for the rise of this bullish stock.