NVIDIA Q3 2021 Earnings Preview: Watch Out For Data Center Revenue, Q4 Guidance

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After an eventful year, chip designer NVIDIA Corporation is all set to release its earnings report for its third quarter of the fiscal year 2021 on Wednesday. NVIDIA, who not only announced a key acquisition but also upgraded its entire graphics processing unit (GPU) lineup earlier this year is intent on capitalizing on the current trends towards artificial intelligence and data center computing, in addition to competing with its traditional rival in the GPU market AMD.

NVIDIA's shares are up 122% year-to-date as they overcome the market-wide slump in March. The shares closed at $239.91 at the start of this year and since then, they've added $291.97 in gains - the most of its two near-peers in the semiconductor industry, namely AMD and Intel Corporation. AMD's shares opened at $49.10 at the start of the year and since then the CPU and GPU designer has added $32.33 in value to mark a 66% year to gain. Intel is the worst faring stock of the three as the chipmaker bore the brunt of its process node delay and dropping data center revenue, with the stock having lost 25% of its value year-to-date.

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NVIDIA's Third Quarter 2021 Earnings Will Reveal A100 Tensor Core GPU's Reception In A Quarter Marred By Supply Constraints

The big highlight for NVIDIA this quarter was the launch of its highly anticipated GeForce 30 series lineup utilizing the latest generation of process manufacturing technologies. A controversial decision for the RTX 30 'Ampere' series of chips was NVIDIA's choice to use Korean chaebol Samsung Electronics' 8nm process node instead of the Taiwan Semiconductor MArnufcturing Company (TSMC)'s 7nm process utilized by its competitor AMD. NVIDIA chose the 7nm process for its A100 data center GPU, and whether supply constraints factored in this decision is uncertain.

However, even though the Ampere lineup was launched during a global economic shock, NVIDIA struggled to keep up with the logistical aftermath of such a highly anticipated product reveal. Major online retailers, including NVIDIA itself, crashed after the product embargo was lifted and in a haphazard state of affairs post-launch 'scalpers' started to unload the cards that they had managed to get their hands on at exorbitant prices on third-party platforms.

The very next day after launch, rumors surfaced that the entire product lineup will face shortages, and NVIDIA's Chief Executive Officer Mr. Jen-Hsun Huan confirmed this a month later by stating that demand had exceeded the company's expectations. However, for some gamers, insider reports also revealed that the entry-level GeForce RTX 3070 GPU might not witness shortages at all.

Be On Lookout For Q4 Guidance To Determine Company Expectations For RTX 30 GPU Series

Mr. Huang's admission was followed by a damming reveal (using a single data point) showing that his NVIDIA and its Add-in-Board (companies who couple the GPU chips with boards) partners had managed to fulfill a meager 7.4% of demand from a European retailer. The data also revealed that demand for the RTX 3080 was the highest among the retailer's customers.

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Another crucial segment to watch out for, as always, will be data center. NVIDIA's revenue for the segment grew significantly in its second quarter, and a strong performance from AMD in the area might also indicate growth for NVIDIA. However, AMD's growth in the company's Enterprise, Embedded and Semi-Custom come with a caveat. The company also reports sales of products for gaming consoles, including the Sony PlayStation 5 and Microsoft's Xbox, so its results in the segment might be unreliable as a gauge.

Microsoft Corporation's Azure and Google's Google Cloud both grew their revenues during the quarter, so the market for enterprise, cloud and data center seems to be healthy even as we start to exit a tumultuous year. To narrow down what NVIDIA might achieve in this crucial segment, let's take a look at what Wall Street analysts have been saying over these past few weeks.

NVIDIA's Ampere A100 EGX Board for data center use.

Wall Street Analysts Expect NVIDIA To Beat Q3 FY 2021 Guidance

Wall Street analysts were full of praise for NVIDIA early last month after the company's GPU Technology Conference. Data Center product cycles were the center of attention for UBS analyst Tim Arcuri, who stated his belief that the best was yet to come for NVIDIA in the segment. Arcuri proceeded to maintain his firm's $625/share price target for the company, with the analyst claiming that NVIDIA's lead in software-led AI innovation was "years" ahead of any competitor.

NVIDIA's belief that GPU-based interference (calculations for artificial intelligence platforms) would come to account for 90% of Cloud interference applications impressed JPMorgan's Harlan Sur, who proceeded to upgrade NVIDIA's price target to $605/share through a $95 increase.

While revenues from its RTX 30 series shouldn't make a dramatic impact on NVIDIA's balance sheets, even more so due to supply constraints, the company's DGX A100 system with eight A100 GPUs has had plenty of time to settle in the market after its May launch. The third quarter will mark the first full quarter for A100 sales, and it will provide critical insight into how well the product is gaining traction, seasonal cycles notwithstanding. However, this doesn't mean the earnings release won't be without any focus on the RTX 300 lineup. NVIDIA's guidance for its fourth quarter should factor in a full quarter of sales for the new chips, and if Mr. Huang's optimism holds, then expect aggressive guidance from his company.

Coming back to analysts, only one shared his opinion on NVIDIA this week. Deutsche bank's Ross Seymore increased his firm's price target for NVIDIA by $50 to $500/share. He expects the company to beat Q3 guidance and post guidance for this quarter above analyst consensus. Wall Street analysts expect the company to pull in $4.4 billion in revenue and $2.56 in Earnings Per Share according to analysts polled by Yahoo Finance. The company's guidance at the end of the previous quarter puts revenue at $4.4 billion +/- 2%.

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