Chipmaker Nvidia (NVDA) is poised to deliver yet another solid quarter of earnings fueled by its steadily-growing gaming division.
Wall Street is anticipating $1.69 billion in revenue and $0.57 of earnings per share when Nvidia reports fiscal third-quarter earnings after the markets close on Thursday.
The chipmaker has been on an incredible run this year as its niche, fast-growing segments such as virtual reality and automotive continue to deliver strong performance. Its stock has more than doubled year-to-date, although they were trading down about 3% on Thursday.
"The management expects pretty solid growth once again," said Morningstar analyst Abhinav Davuluri. "They're on a streak of about five straight quarters of beating their guidance. It's pretty safe to say they'll beat it."
Most of Nvidia's growth has been coming from its gaming segment, which sells graphics processing units to the high-end PC gaming sector.
At the same time, significant growth is starting to be largely driven by smaller sub-segments such as automotive and data centers that are seeing annual growth of around 60% to 70%. The two divisions each account for only between 5% and 10% of overall sales, however.
The gaming division, which comprises about 55% of Nvidia's overall revenue, will once again drive growth in the fiscal third quarter, Davuluri said, while cautioning that the chipmaker could start to face cycle-driven renewal pressure from its customers next year.
Nvidia will likely beat expectations and raise guidance again this quarter, agreed RBC Capital Markets analyst Mitch Steves in a note this week.
"While the share count will likely increase again due to stock price appreciating making the EPS beat more muted, we think top-line dynamics will continue to drive the stock higher," he noted.
Investors will likely look for the gaming division to continue growing with Nvidia's recent release of new GPUs, RBC's Mitch Steves said, referring to the graphics chips thats specialize in rendering images, animations and video.
He added that the semi's auto segment is currently focused on infotainment, but the next phase of growth would likely stem from autonomous driving. Nvidia announced last month that it will be supplying chips for Tesla Motors' (TSLA) sensors in its future cars.
"No one's looked to leverage GPUs this way," Morningstar's Davuluri noted, referring to the way Nvidia has used them across several fast-growing end-markets.
While Nvidia has gotten a jumpstart by focusing on GPUs, it will start to face more competition across end-markets it serves.
Advanced Micro Devices (AMD) , which is trying to get a foothold in the GPU space, has indicated it wants to enter the data center market. And Intel (INTC) already added a layer of competition in this market when it acquired Altera last year for $16.7 billion.
Meanwhile, the tie-up between Qualcomm (QCOM) and NXP Semiconductors (NXPI) will present fierce competition in the automotive sector that NXP has dominated.
R&D spending may increase, but Nvidia has plenty of firepower to keep its healthy top-line growth, Davuluri added.
--Written by Jaewon Kang
