Nvidia (NVDA) will report first quarter earnings today, May 16, after the close of New York markets.
Wall Street is expecting the company to report earnings of 81 cents a share–which would be a drop of 60.5% year over year–on revenue of $2.195 billion, a decline of 31.6% year over year.
Nvidia used to be a momentum stock and traders and investors still remember when Nvidia reported an earnings and revenue surprise every quarter. Which makes predicting how Nvidia’s shares will respond to earnings very tricky.
That pattern came to an end in November 2018 when the company disappointed Wall Street on revenue and earnings on a slower than expected launch of its new RTX video cards and a build up in inventories at the company.Part of the problem with the RTX video cards is that the product was launched at a significantly higher price just as demand for mid-level cards was about to fall as on lower orders from the cryptocurrency market as cryptocurrency prices fell in late 2018 and companies in that market pulled back on orders for new machines.
At the same time Nvida’s inventories hit a record $1.575 billion in the fourth quarter. That could be a problem in this quarter’s report if Nvidia doesn’t show that it has reduced the size of its inventory or at least passed along some of the inventory build up to its customers.
I’d also watch gross margins which have tumbled for three quarters in a row after reaching a record 64.48%. In the fourth quarter the gross margin was just 54.84%, the lowest in five years.
I named Nvidia a possible plunge on earnings report candidate in my JubakAM.Com subscription site Special Report on 10 stocks that could fall hard on an earnings miss this quarter. I also noted that if it did, I would probably recommend buying shares–depending on what the company says about when investors can expect the inventory problem to be resolved. Nvidia is also a member of my Jubak Picks Portfolio. That position is down 18.52% since I added it to that portfolio on December 29, 2017.