NVIDIA Q1 2018 Quarterly Earnings Breakdown – Shatters EPS and Revenue Records With Strong Second Quarter Guidance

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May 11, 2018
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NVIDIA (NASDAQ:NVDA) posted another record-breaking quarter, blowing away analyst expectations for another consecutive quarter. Analysts expectations for EPS were $1.45 which the company beat by a cool 60 cents. Revenue expectation was $2.89 Billion and the company posted sales of $3.21Billion. NVIDIA even managed to beat analysts expectations of the forecast for the second quarter which is $3.1 Billion as opposed to the $2.95 Billion market expectation.

nvidia-titan-xp-ce-star-wars-jedi-order-gallery-02-1Related NVIDIA Stock Plummets – Wipes Away 18 Months of Gains In Two Days

Our take: Full steam ahead, but mind the AI!

Disclaimer: I do not own stock in NVIDIA or any of its surrounding ecosystem and have no plans to do so for the immediate future.

NVIDIA has always been the golden goose of the PC trio – or atleast for the past couple of years. Its divirisfication story into an AI powerhouse is probably one for the ages. Initially a gaming graphics card manufacturer, the company now has well-established ecosystems in just about everything related to GPGPU and AI processing – from Hollywood to the Top 100 super computers. In the recent past, it has almost conscutively blown away analyst expectations and posted record quarter after record quarter – so the question that everyone asks is: when will the golden streak end?

That is the billion dollar question if you are a holder of NVDA stock. Is it going to be this quarter or the next or X quarters after? No company on earth can have a perpetual growth rate (and this is a basic assumption of finance) and NVDA has continued to beat the odds quarter after quarter. While no one can predict when this will happen for the company, we can look at the fundamentals and see how they stack up against the P/E multiplier and market expectations.

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Let’s talk about the graphics cards first. This quarter, NVIDIA claimed that it differentiated between mining revenue and gaming revenue as far as its graphics cards were concerned and aggregated the mining revenue in OEM and IP. Let me begin by saying this is impossible. What they have done instead is aggregate the dedicated mining cards into the OEM & IP segment and all normal graphics cards bought for mining are still included in the Gaming segment.

The good news is, however, that even with this caveat, NVIDIA’s graphics side remains so strong that we don’t see its lead breaking any time soon. In fact, the company is now at least 1.5 years ahead of RADEON is quite evident in the fact that its rival hasn’t had a competitive card out for almost a year and as far we can tell – will not do so anytime soon. The problem lies with GCN architecture which cannot scale beyond 4096 SPs. NVIDIA faces no such problem. So its monopoly in graphics card will continue in the near future.  So based on the prevailing competitive environment, NVIDIA is comfortably set as far as its gaming products go.

AI, on the other hand, is a field that is increasingly seeing more competition. Where NVIDIA graphics card reigned supreme for GPGPU based DNN processing, we are now seeing more (and better) entrants like the Google TPU v2 pod and the inference win for Intel Xeon processors. While NVIDIA has a very well establisehd ecosystem with CuDNN, which is unlikely to be broken anytime soon, the market for edge cases and nice/datacenter adoptations is quickly heating up.

Finally, let’s talk a bit about cryptocurrency mining. As we mentioned before, cryptocurrency mining almost certainly has an impact on the Gaming revenue, but the good news is that NVIDIA can actually maintain its current trajectory thanks to the fact that it’s sitting on more than 1 graphics architecture. The release of a new uArch almost always results in a new spur of sales and as the cryptocurrency demand dies a bit, the company can simply roll out a new architecture that will further cement their monopoly over the gaming graphics industry.

So with the exception of its AI efforts (which are just shy of perfect), the company’s fundamentals appear to be in very good shape.

Curated Highlights

NVIDIA today reported record revenue for the first quarter ended April 29, 2018, of $3.21 billion, up 66 percent from $1.94 billion a year earlier, and up 10 percent from $2.91 billion in the previous quarter.

  • Record revenue of $3.21 billion, up 66 percent from a year ago
  • Record GAAP EPS of $1.98, up 151 percent from a year ago
  • Record Datacenter revenue of $701 million, up 71 percent from a year earlier

GAAP earnings per diluted share for the quarter were a record $1.98, up 151 percent from $0.79 a year ago and up 11 percent from $1.78 in the previous quarter. Non-GAAP earnings per diluted share were $2.05, also a record, up 141 percent from $0.85 a year earlier and up 19 percent from $1.72 in the previous quarter.

“We had a strong quarter with growth across every platform,” said Jensen Huang, founder and chief executive officer of NVIDIA. “Our datacenter business achieved another record and gaming remained strong.

“At the heart of our opportunity is the incredible growth of computing demand of AI, just as traditional computing has slowed. The GPU computing approach we have pioneered is ideal for filling this vacuum. And our invention of the Tensor Core GPU has further enhanced our strong position to power the AI era,” he said.

Capital Return
During the first quarter of fiscal 2019, NVIDIA returned $746 million to shareholders through a combination of $655 million in share repurchases and $91 million in quarterly cash dividends.

For fiscal 2019, NVIDIA intends to return $1.25 billion to shareholders through ongoing quarterly cash dividends and share repurchases.

NVIDIA will pay its next quarterly cash dividend of $0.15 per share on June 15, 2018, to all shareholders of record on May 24, 2018.

Gaming

  • Announced NVIDIA RTX™, a groundbreaking computer graphics technology that produces movie-quality images in real time.

Datacenter

  • Unveiled at the annual GPU Technology Conference, in San Jose, with nearly 8,500 registered attendees, advances to its deep learning computing platform – including NVIDIA® Tesla® V100 GPUs with 32GB memory, NVIDIA NVSwitch™ GPU interconnect fabric and NVIDIA DGX-2™, the first server with two petaflops of computational power.

Professional Visualization

  • Announced the Quadro® GV100 GPU with RTX technology, making real-time ray tracing possible on professional design and content creation applications.

Automotive

  • Automotive revenue grew 4 percent from a year earlier to a record $145 million.
  • Introduced the NVIDIA DRIVE Constellation server with DRIVE Sim™ software, a complete system to safely test drive autonomous vehicles over billions of miles in virtual reality by leveraging NVIDIA GPUs and NVIDIA DRIVE Pegasus™.

New Platforms

  • Introduced Project Clara, a medical imaging supercomputer, to revolutionize medical imaging.
  • Announced that Arm will integrate the open-source NVIDIA Deep Learning Accelerator to bring AI inference to mobile, consumer electronics and Internet of Things devices.

NVIDIA NASDAQ:NVDA Q1 2018 (FY19) Financial Results

GAAP
($ in millions except earnings per share) Q1 FY19 Q4 FY18 Q1 FY18 Q/Q Y/Y
Revenue $3,207 $2,911 $1,937 Up 10% Up 66%
Gross margin 64.5% 61.9% 59.4% Up 260 bps Up 510 bps
Operating expenses $773 $728 $596 Up 6% Up 30%
Operating income $1,295 $1,073 $554 Up 21% Up 134%
Net income $1,244 $1,118 $507 Up 11% Up 145%
Diluted earnings per share $1.98 $1.78 $0.79 Up 11% Up 151%
Non-GAAP
($ in millions except earnings per share) Q1 FY19 Q4 FY18 Q1 FY18 Q/Q Y/Y
Revenue $3,207 $2,911 $1,937 Up 10% Up 66%
Gross margin 64.7% 62.1% 59.6% Up 260 bps Up 510 bps
Operating expenses $648 $607 $517 Up 7% Up 25%
Operating income $1,428 $1,202 $637 Up 19% Up 124%
Net income $1,285 $1,081 $533 Up 19% Up 141%
Diluted earnings per share $2.05 $1.72 $0.85 Up 19% Up 141%

NVIDIA Segment and Platform Breakdown Q1 FY19

 Revenue by Reportable Segments
($ in millions) Q1 FY19 Q4 FY18 Q1 FY18 Q/Q Y/Y
GPU Business $2,765 $2,461 $1,562 Up 12% Up 77%
Tegra Processor Business 442 450 332 Down 2% Up 33%
Other -- -- 43 -- Down 100%
Total $3,207 $2,911 $1,937 Up 10% Up 66%
 Revenue by Market Platform
($ in millions) Q1 FY19 Q4 FY18 Q1 FY18 Q/Q Y/Y
Gaming $1,723 $1,739 $1,027 Down 1% Up 68%
Professional Visualization 251 254 205 Down 1% Up 22%
Datacenter 701 606 409 Up 16% Up 71%
Automotive 145 132 140 Up 10% Up 4%
OEM and IP 387 180 156 Up 115% Up 148%
Total $3,207 $2,911 $1,937 Up 10% Up 66%

Outlook for Q2 FY19

  • Revenue is expected to be $3.10 billion, plus or minus two percent.
  • GAAP and non-GAAP gross margins are expected to be 63.3 percent and 63.5 percent, respectively, plus or minus 50 basis points.
  • GAAP and non-GAAP operating expenses are expected to be approximately $810 million and $685 million, respectively.
  • GAAP and non-GAAP other income and expense are both expected to be income of approximately $15 million.
  • GAAP and non-GAAP tax rates are both expected to be 11.0 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 are expected to generate variability on a quarter by quarter basis.
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