Nvidia share price: Q2 earnings preview

Nvidia’s share price has surged by close to 50% year-to-date. Can its upcoming Q2 results draw further upside for its share price?

When does Nvidia report earnings?

Nvidia is set to release its Q2 financial results on 18 August, after market close.

Nvidia earnings – What to expect

Expectations for its upcoming Q2 results are for revenue to come in at US$6.4 billion, up 64% from a year earlier and up 11.2% from the previous quarter. On the other hand, its earnings per share (EPS) is expected to come in at US$1.02, up 31% from the previous quarter of US$0.78.

A majority 85% of Nvidia’s end-user revenue comes from both its gaming and data centre segment, which has been seeing continued strength over the past four quarters. In light of digital transformation for businesses, the ongoing shift towards cloud is expected to continue to drive demand for its data centre GPUs. The trend has been largely reflected in recent quarter’s results from Microsoft and Amazon, which saw a 51% and 37% year-on-year increase for their cloud segments. On the other hand, the launch of its GeForce RTX 30 Series may continue to provide a tailwind for its gaming segment towards the rest of the year, as the upgrade cycle for its GPU installed base kicks into high gear.

Previous guidance for the timeline of its ARM acquisition is expected to be in early 2022. However, there seems to be more uncertainty in the deal passing through, with the UK recently having concerns about the takeover due to potential risks to national security. The deal will be widely accretive for Nvidia, with potential control of ARM’s IP licensing portfolio giving it an advantage in pricing power, along with internal cost-savings. Any positive surprise on the acquisition progress may be a catalyst to boost share price ahead.

How to trade Nvidia earnings

Nvidia’s forward P/E currently stands at 47.2, commanding a significant premium over the technology sector of 17.5. This may come as Nvidia continues to dominate the discrete graphics processing unit (GPU) space with a 81% market share as of Q1 2021. With its revenue growth rate over the past three years largely pulling ahead of its peers, high expectations for its growth rate to continue may also be priced into its valuation.

Currently, the stock has 37 ‘buy’ recommendations, six ‘holds’ and two ‘sells’. The last closing price of US$196.99 at the time of writing seems to be in line with the Bloomberg 12-month consensus target price of US$198.07.

Nvidia shares – technical analysis

Nvidia’s share price seems to form a double top formation, with key resistance at its recent all-time high around the US$207.50 level. Near-term support may potentially be at the US$192.50 level, where an upward sloping trendline connecting higher lows since March may come into play. This will be followed by the US$177.50 level, where the neckline of the double top formation will be closely watched. A potential break below the neckline may point to further downside in share price towards its 200-day moving average.

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