Nvidia Corporation (NASDAQ: NVDA) Reports A Strong First Quarter for FY18 – Beats Analysts’ Expectation by 13 Cents with EPS of $0.79 on Revenue of $1.93 Billion

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NVIDIA (NASDAQ:NVDA) has just reported a very strong first quarter for its fiscal year 2018 with a GAAP EPS of 0.79 cents (and a non-GAAP EPS of 0.85 cents) handily beating analysis estimates by 13 cents. The company posted a GAAP net income of $507 Million against a revenue of $1.93 Billion, beating analyst estimates of $1.89 Billion. Needless to say, this is quite the triumphant moment for the chip maker – having shown that it can sustain the explosive growth it showed last year.

Short Interest for the company’s stock had risen just before the earnings, but this is something that is usually expected and wasn’t of a high enough level to depict shifting investor sentiment. NVIDIA will pay its next quarterly cash dividend of $0.14 per share on June 14, 2017, to all shareholders of record on May 23, 2017.

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Almost all segments of the company saw double digits growth this quarter (on a yearly basis) except the IP segment, which was down by approximately 10% primarily due to the end of life of the Intel-NVIDIA licensing agreement. The company is just starting to get comfortable in the AI and autonomous driving segment and is standing on the very solid foundation of its bullish graphics business. Mr. Jen Hsun Huang had the following to say on the occasion:

"The AI revolution is moving fast and continuing to accelerate," said Jensen Huang, founder and chief executive officer of NVIDIA. "NVIDIA's GPU deep learning platform is the instrument of choice for researchers, internet giants and startups as they invent the future.

"Our Datacenter GPU computing business nearly tripled from last year, as more of the world's computer scientists engage deep learning. One industry after another is awakening to the power of GPU deep learning and AI, the most important technology force of our time," he said.

NVIDIA has also announced that it will be creating an AI self-driving chip which will be branded under the Bosch brand as well as a collaboration with PACCAR a leading truck manufacturer which is pursuing autonomous solutions in the freight scene. It is clear that the company is knee deep in the self-driving industry and wishes to go deeper - something which can only help its diversification of risk in the eyes of investors as opposed to the ever-diminishing red-shifting PC market.

NVIDIA (NASDAQ:NVDA) stock shoots up ~14% in after-hours trading

At the time of writing, the company's stock is hovering at $117.30 (up 13.95% from yesterday's close) and seems to have reversed some of the usual bearish sentiment that pervades shortly before an earnings announcement (when the stock dropped to as low as $102). The company introduced the TITAN Xp as well as the GTX 1080 Ti this quarter and if previous sales are any indicator, then the latter at least will perform very well in the market.

Our in-house anecdotal evidence revealed that more than 21% of our readers were willing to chase price points higher than $600 as long as they got an uncompromising performance level. While the majority of consumers will still chase the pure perf per $ metric, an increasingly large number of GPU owners are shifting towards the higher end market progressively. This red-shifting is something that hasn't gone amiss by NVIDIA (NASDAQ:NVDA) and is being fully capitilized on by its high end lineup (which AMD has so far been unable to offer competition on). Some general things to remember:

  • The company had no competition over the $300 price point. This is something that could potentially change next quarter depending on when AMD decides to roll out Vega.
  • The automotive earnings show it has made material headway into the autonomous vehicle industry which was previously dominated by Mobileye. This is something that could easily change following the recent divorce of Tesla and Mobileye.
  • Deep Learning is something NVIDIA GPUs are being widely implemented in and this lead is being maintained thanks to introduction of Pascal architecture with CuDNN 5
  • The downside risk of this company is limited in nature, however, it is still vulnerable to disruptions that originate from TSMC (including but not limited to Apple being given priority for orders on the 16nm (and lower) nodes or bad yields, both of which are likely).
  • The company is gearing up to unveil its next generation architecture, Volta, which could be shown off tomorrow at GTC. Graphics cards based on Volta are rumored to launch in Q3 2017.

The automotive side of things and the GPGPU market is something that we expect to only grow bigger with time. The star of the show however, was the company's datacenter segment which has shown almost thrice the revenue (on a yearly basis) and shows the increasing market that GPGPUs can cater to. The company's CUDA ecosystem has allowed it to make an absolute killing and cement its momentum in this particular industry. That said, it faces competition from AMD's Radeon Instinct GPUs which offer competitive perf per $ and perf per watt metrics.

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All in all it was an almost flawless quarter and something that they can easily sustain if they roll out Volta on time, and manage to stay competitive in the wake of AMD's Vega GPU.

NVIDIA Q1 FY18 Segment & Financial Highlights:

  • First quarter revenue of $1.94 billion increased 48 percent year over year and decreased 11 percent sequentially. Growth was driven by GPUs for gaming, datacenter, and professional visualization, as well as for Tegra® automotive systems.
  • GPU business revenue was $1.56 billion, up 45 percent from a year earlier and down 16 percent sequentially, led by strength across all platforms, including exceptional growth from datacenter and gaming platforms. GeForce GPU gaming results were led by continued strong adoption of our latest Pascal™ architecture. Datacenter (including Tesla®, NVIDIA GRID™ and DGX-1™) was a record $409 million, up 186 percent year on year and up 38 percent sequentially. This reflects strong demand for deep learning training from hyperscale customers, cloud instances of GPU computing, GRID and DGX-1 sales.
  • Tegra processor business revenue, which included gaming development platforms and services, was $332 million, up 108 percent from a year ago and up 29 percent sequentially. Tegra business revenue includes SOC modules for Nintendo Switch. Also included was record automotive revenue of $140 million, primarily from infotainment modules, which was up 24 percent from a year earlier and up 9 percent sequentially.

The financial highlights are as follows:

  • Revenue from our patent license agreement with Intel was $43 million, reflecting the remaining revenue for this agreement.
  • GAAP gross margin for the first quarter was 59.4 percent and non-GAAP gross margin was 59.6 percent. These reflect a sequential decrease associated with lower licensing revenue from Intel.
  • GAAP operating expenses were $596 million, including $79 million in stock-based compensation and other charges. Non-GAAP operating expenses were $517 million, up 17 percent from a year earlier and up 4 percent sequentially. This reflects growth in headcount and related costs for our growth initiatives.
  • GAAP operating income was $554 million in the first quarter, up 126 percent from a year earlier. Non-GAAP operating income was $637 million, up 98 percent from a year earlier.
  • Non-GAAP effective tax rate was 16 percent.
  • GAAP net income was $507 million and earnings per diluted share were $0.79, up 144 percent and 126 percent, respectively, from a year earlier. Non-GAAP net income was $533 million and earnings per diluted share were $0.85, up 103 percent and 85 percent, respectively, from a year earlier, fueled by strong revenue growth and improved gross and operating margins.
  • During the first quarter, NVIDIA paid $82 million in cash dividends. For fiscal 2018, NVIDIA intends to return $1.25 billion to shareholders through ongoing quarterly cash dividends and share repurchases.
  • Since the restart of its capital return program in the fourth quarter of fiscal 2013, NVIDIA has returned $4.10 billion to shareholders. This return represents 85 percent of our cumulative free cash flow for fiscal 2013 through the first quarter of fiscal 2018.

NVIDA Q1 2017 (FY 2018) GAAP Financial Results

WccftechQ1 FY18Q4 FY17Q1 FY17Q/QY/Y
Revenue$1,937$2,173$1,305down 11%up 48%
Gross margin59.4%60.0%57.5%down 60 bpsup 190 bps
Operating expenses$596$570$506up 5%up 18%
Operating income$554$733$245down 24%up 126%
Net income$507$655$208down 23%up 144%
Diluted earnings per share$0.79$0.99$0.35down 20%up 126%

NVIDIA Q1 2017 (FY 2018) Non-GAAP Financial Results

WccftechQ1 FY18Q4 FY17Q1 FY17Q/QY/Y
Revenue$1,937$2,173$1,305down 11%up 48%
Gross margin59.6%60.2%58.6%down 60 bpsup 100 bps
Operating expenses$517$498$443up 4%up 17%
Operating income$637$809$322down 21%up 98%
Net income$533$704$263down 24%up 103%
Diluted earnings per share$0.85$1.13$0.46down 25%up 85%

Revenue by Reportable Segments - NVIDIA Q1 2017

WccftechQ1 FY18Q4 FY17Q1 FY17Q/QY/Y
GPU Business$1,562$1,850$1,079down 16%up 45%
Tegra Processor Business332257160up 29%up 108%
Other436666down 35%down 35%
Total$1,937$2,173$1,305down 11%up 48%

Second Quarter of 2017 (Fiscal 2018) Outlook for NVIDIA (NASDAQ:NVDA)

The official outlook for the second quarter of fiscal 2018 is as follows:

  • Revenue is expected to be $1.95 billion, plus or minus two percent.
  • GAAP and non-GAAP gross margins are expected to be 58.4 percent and 58.6 percent, respectively, plus or minus 50 basis points.
  • GAAP operating expenses are expected to be approximately $605 million. Non-GAAP operating expenses are expected to be approximately $530 million.
  • GAAP other income and expense is expected to be an expense of approximately $8 million, inclusive of additional charges from early conversions of convertible notes. Non-GAAP other income and expense is expected to be an expense of approximately $3 million.
  • GAAP and non-GAAP tax rates for the second quarter of fiscal 2018 are both expected to be 17 percent, plus or minus one percent, excluding any discrete items. GAAP discrete items include excess tax benefits or deficiencies related to stock-based compensation, which we expect to generate variability on a quarter by quarter basis.
  • Weighted average shares used in the GAAP and non-GAAP diluted EPS calculations are dependent on the weighted average stock price during the quarter.
  • Capital expenditures are expected to be approximately $55 million to $65 million.
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