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Will NVIDIA’s Quarterly Earnings per Share Cross the $2 Mark?

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Nov. 20 2020, Updated 4:20 p.m. ET

NVIDIA’s earnings per share trend

NVIDIA’s (NVDA) profit margins improved as revenue rose faster than expenses thanks to strong demand for higher-margin products. These higher profit margins translated into higher EPS (earnings per share).

NVIDIA’s growth spree started in fiscal 3Q17 when it reported first full quarter sales of its Pascal GPUs (graphics processing units). With Pascal, the demand for its higher-end GPUs increased, thereby increasing its overall profit. Thus, NVIDIA’s non-GAAP EPS rose 230% from $0.35 in fiscal 4Q16 to $1.15 in fiscal 4Q17.

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NVIDIA continued to benefit from high demand in both gaming and data center in fiscal 2018, and the cryptocurrency boom added to the demand, increasing NVIDIA’s EPS 49% YoY (year-over-year) to $1.72. The company’s EPS also benefitted from US tax reforms, which brought one-time tax savings of $133 million.

The cryptocurrency boom and savings from tax reform also helped Advanced Micro Devices (AMD) turn around its negative EPS in calendar 4Q16 to positive EPS in calendar 4Q17.

Earnings per share guidance for fiscal 1Q19

The benefits from tax reform could also be visible in fiscal 1Q19, as the company expects its tax rate to fall from ~17% to ~12% in fiscal 2019. The lower tax rate will likely increase the company’s EPS and leave more money in its hands to invest in future growth opportunities.

Rival AMD’s EPS rose from $0.01 in calendar 4Q17 to $0.11 in calendar 1Q18, beating the analyst estimate of $0.06 by 83%. AMD’s strong EPS was the result of AMD’s entry in the high-margin laptop processor market and high demand from crypto miners.

Wall Street analysts expect NVIDIA’s EPS to fall 14.5% sequentially to $1.47 in fiscal 1Q19. However, in the past two years, NVIDIA has exceeded the analysts’ quarterly EPS estimate by an average margin of 43.5%. This trend is likely to continue in fiscal 1Q19 as well. For this reason, some are expecting NVIDIA’s EPS to increase as much as 22% sequentially to $2.1 in fiscal 1Q19.

Next, we’ll look at the impact of high margins on cash flows.

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