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Strong gaming revenue helps Nvidia (NASDAQ:NVDA) to Q2 earnings and revenue beats

  • GPU designer and maker posts $1.24 Non-GAAP EPS and $2.58bn revenue versus $1.15 and $2.55bn estimates
  • Expects $2.9bn revenue, 62–62.5% gross margins in fiscal Q3
  • Analysts say Nvidia performed well in a challenging environment, gaming offset data centre weakness
  • Shares rise 8% on Friday, company valued at around $98.2bn

Nvidia Corp. (NASDAQ:NVDA) said it was “happy” with its financial performance in the second quarter as robust video game revenues helped the chipmaker beat the Wall Street consensus on both earnings and revenue. The better-than-expected showing pushed NVDA shares 8% higher on Friday.

For the three month period ending 28th July, Nvidia delivered $1.24 Non-GAAP EPS and $0.90 GAAP EPS, which was 9 cents and 7 cents ahead of pre-report forecasts, respectively. Group revenues were down 17.3% year-over-year to $2.58bn, but that was still an improvement on Q1 and $30m ahead of expectations.

CEO Jensen Huang said its gaming division is “doing great” and, after a rebound to growth across various platforms during the latest period, he expects a healthy Q3 with revenue guidance of $2.9bn – give or take 2%. He also expects gross margins on a GAAP and non-GAAP basis to fall between 62% and 62.5%.

During a conference call late last week, Huang said: “Ray traced games continue to gain momentum. A large number of gaming laptops are rolling out, and our new Studio platform is reaching the large underserved community of creators.”

He added: “Outside a few hyperscalers, we're seeing broad-based growth in data centres. AI is the most powerful technology force of our time and a once-in-a-lifetime opportunity.”

Nvidia said gaming revenues jumped 24% from the previous quarter, making up for a 13% decline in data centre revenues ($655m), while Auto and OEM & IP divisions beat the analyst consensus with returns of $209m and $104m, respectively.

After sifting through the finer details of the report on Friday, BMO Capital Markets was among the banks and research firms offering a positive analysis. Analyst Mabrish Srivastava added $5 to a higher $145 price target after noting gross margin is recovering in a more sustainable manner than previously modelled for.

Deutsche Bank reiterated its Hold rating and $160 price target after stating the report would be “good enough” in the short term. Deutsche Bank added: “Longer-term, we continue to see NVDA well positioned across a number of vectors (Datacentre, Provis, Automotive). However, with little change to our long-term EPS estimates, data centre uncertainty remaining elevated, and an already premium valuation, we continue to see the stock as fairly valued.”

Nvidia has added three new bears since the start of the summer and now has 23 Buy ratings in total, compared to nine at Hold and one at Sell. The Overweight consensus is backed up by a $182.50 price target, which is more than $20 up on Friday’s price. After soaring 8% in premarket, NVDA shares were valued at $160.71, pushing the California-based firm’s year-to-date gains to 20%.