Nvidia Sinks Despite Stellar Earnings; Top Analyst Says Buy On Any Weakness

Nvidia (NVDA) has posted stellar earning results for the fiscal first quarter, although shares moved marginally lower in Thursday’s after-hours trading due to weaker-than-expected guidance. Income doubled from the same period last year, with Q1 Non-GAAP EPS of $1.80 beating the Street by $0.12, and GAAP EPS of $1.47 also topping expectations by $0.10.

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Revenue of $3.08B represented a 39% year-over-year gain, while also easily beating estimates by $80M. Most notably, gaming rose 27% to $1.34B and Data Center shot up 80% to hit $1.14B.

At the same time Nvidia announced that it completed its $7 billion acquisition of Mellanox Technologies on April 27.

“NVIDIA had an excellent quarter. The acquisition of Mellanox expands our cloud and data center opportunity. We raised the bar for AI computing with the launch and shipment of our Ampere GPU. And our digital GTC conference attracted a record number of developers” commented NVIDIA founder and CEO Jensen Huang.

“Our Data Center business achieved a record and its first $1 billion quarter. NVIDIA is well positioned to advance the most powerful technology forces of our time – cloud computing and AI,” he said.

Looking forward, Nvidia gave guidance for the fiscal second quarter of $3.65B in revenue (+- 2%) with GAAP gross margins at 58.6% and non-GAAP gross margins at 66% (+- 50 bp). Mellanox is expected to contribute a low-teens percentage of combined second quarter revenue.

Due to market uncertainties, Nvidia also announced that it is evaluating the timing of resuming share repurchases and will remain nimble based on market conditions. The company is currently authorized to repurchase up to $7.24 billion in shares through December 2022.

However, NVDA reassured investors that it remains committed to paying its quarterly dividend. In the first quarter of fiscal 2021, NVIDIA paid dividends of $98 million.

“Nvidia reported solid quarterly results with DC coming in a bit higher than we expected and gaming a tad below our revised estimates heading into Apr-qtr. Notably, while the quarter was strong we think guidance was a tad light when adjusted for Mellanox” commented RBC Capital analyst Mitch Steves following the print.

While the quarter was solid, the analyst believes guidance adjusted for Mellanox was a bit lower than expected, with most investors looking for $410-430M for Mellanox next quarter.

Ultimately however he writes “we think the results were solid given elevated expectations and would be buyers on pullbacks in price going forward (shares appear to be set to open slightly lower).” Steves has a buy rating on the stock and $385 price target (10% upside potential).

Overall NVDA scores a firmly bullish Strong Buy Street outlook, with 19 recent buy ratings vs 3 hold ratings and 1 sell rating. Meanwhile the average analyst price target of $331 indicates downside potential of 6%, with shares rallying an impressive 49% year-to-date. (See Nvidia stock analysis on TipRanks).