It's safe to say that expectations have risen a bit going into Nvidia's October quarter (fiscal third quarter) report, which arrives on Thursday afternoon. The consensus among analysts polled by FactSet is for revenue of $2.92 billion (up 13% sequentially and down 8% annually), GAAP EPS of $1.24 and non-GAAP EPS of $1.58.
For the January quarter -- Nvidia provides sales guidance within its reports -- the consensus is for revenue of $3.06 billion (up 39% annually with the help of an easy comparison).
TheStreet will be live-blogging Nvidia's earnings report on Thursday, along with a call that's set for 5:30 P.M. Eastern Time. Here are some things for investors to keep an eye on.
1. Demand from Cloud Clients
Though Nvidia topped July-quarter sales estimates, its Datacenter segment, which covers sales of server GPUs and Nvidia's GPU-filled DGX systems, fell 14% annually to $655 million and missed estimates. Nvidia suggested that a recent cloud hardware spending pause -- an issue also affecting a slew of other chip suppliers -- weighed on sales, while adding that its enterprise sales (boosted by DGX deal activity) grew. CEO Jensen Huang noted that Nvidia has limited sales visibility for some of its major cloud clients (the proverbial hyperscalers).
For the October quarter, the consensus is for Datacenter revenue of $754 million -- up 15% sequentially and down 5% annually. Though some hyperscalers are spending more aggressively than others right now, there have been some signs -- from Intel (INTC) , Western Digital (WDC) and others -- that total cloud hardware spend is starting to pick up.
2. Gaming Sales Trends
Nvidia gaming GPU sales began to recover in the July quarter from a late-2018/early-2019 tumble caused in large part by inventory corrections that followed a plunge in demand from cryptocurrency miners. That trend is believed to have continued in the October quarter: The consensus is for Nvidia's Gaming segment revenue, which covers gaming GPUs as well as console processor sales, to come in at $1.54 billion -- down 13% annually but up 18% sequentially.
The July launch of Nvidia's "Super"-branded Turing architecture GPUs, which deliver moderate performance gains relative to their predecessors, might have provided a lift. Also, Nvidia, whose Tegra X1 system-on-chip (SoC) powers Nintendo's Switch console, indicated in August that it's getting a boost from production ramps for new Switch models.
3. Automotive Trends
Nvidia's Automotive segment, which covers infotainment processors as well as engagements related to the company's Drive platform for autonomous and semi-autonomous vehicles, was a standout in the July quarter, with revenue rising 30% annually to $209 million. Nvidia indicated the growth largely stemmed from a new autonomous development agreement (possibly with Volvo).
CFO Colette Kress cautioned afterwards that Nvidia's Automotive sales can be lumpy from one quarter to another, while reiterating that the company sees the segment as a long-term growth driver. For the October quarter, the Automotive revenue consensus stands at $199 million (up 16%).
4. Gross Margin Growth
After falling in the prior quarters due to lower sales volumes and the loss of high-margin revenue from the crypto mining segment, Nvidia's non-GAAP gross margin (GM) rose 1.1 points sequentially in the July quarter to 60.1%, with the help of Automotive services revenue and a more favorable Gaming product mix.
Nvidia guided for its GM to rise to a level of 62% to 63% in the October quarter. Kress indicated an improved Gaming product mix would be the biggest driver of margin growth.
5. Mellanox Commentary
In August, Nvidia insisted that is still expects its $6.9 billion deal to buy high-speed data interconnect supplier Mellanox Technologies (MLNX) , which was announced in March, to close by year's end. However, amid ongoing trade tensions, there still hasn't been any word to date about Chinese regulatory approval.
With trade tensions having eased a little lately, Mellanox's stock has risen to around $115. However, that still leaves it comfortably below Nvidia's $125-per-share buyout price. Any comments that Nvidia's management shares about the deal's approval process will be closely watched.
Nvidia is a holding in Jim Cramer's Action Alerts PLUS member club.