Stock of the week - Nvidia (25.02.2021)

• Nvidia reported results for November-January quarter

• Sales increased 61% YoY

• Crypto surge boosts demand for graphics cards used in miners

• Company expects solid performance to continued in early-2021

• Chip shortage limits availability of components

• Stock traded mixed in after-hours

Nvidia (NVDA.US) shares are trading 11% higher year-to-date following an over 120% jump in 2020. Company released its earnings report yesterday after the close of the Wall Street session and it turned out to be mixed with Nvidia stock swing up and down in after-hours trading. Let's take a closer look at the stock and how management sees the outlook for the company's business in future quarters.

Results

Nvidia, US manufacturer of graphic cards, reported results for its fiscal Q4 2021 yesterday (ended on January 31, 2021). Company said it had $5 billion in quarterly sales, an increase of 61% YoY (exp. $4.82 billion). Data center sales increased 97% YoY to $1.9 billion while gaming revenue climbed 67% YoY to $2.5 billion. EBIT increased from $1.22 billion in fiscal Q4 2020 to $2.09 billion now (exp. $1.97 billion). Net income came in at $1.59 billion, up 66% YoY, and earnings per share increased from $1.89 to $3.10 (exp. $2.81). 

Sales and earnings of Nvidia jumped during the pandemic as stay-at-home orders increased demand for PC equipment. Demand for graphics cards was additionally boosted in the second half of 2021 by rebound cryptocurrency market. Source: Bloomberg, XTB

Crypto rally boosts demand for graphics cards

Company names a few sources of strong revenue growth. On one hand we have a pandemic that has seen increased demand for PC equipment due to work-from-home schemes. However, according to Nvidia, sales of graphic cards jumped recently also on the back of gargantuan rise in cryptocurrency prices. Nvidia graphic cards are being used in Bitcoin mining equipment and recent jump in prices on the crypto market has attracted renewed interest in mining. Nvidia announced earlier this week that it will launch graphic cards designed for Ethereum mining. Nvidia plans to start selling mining gear to companies that mine cryptocurrencies on an industrial scale in March but CEO Huang said that it is not expected to be a major part of the company's business.

Solid outlook for early-2021

Quarterly results are impressive given that they come at a time of shortages in the semiconductor market. Moreover, the company expects to repeat superb results this quarter as well. Nvidia announced that it expects revenue in fiscal-Q1 2022 (February-April 2020) to reach $5.3 billion, much higher than expected $4.51 billion. While the company noted that supply-chain constraints have limited availability of components is also said that supply needed for growth is secured. Nevertheless, inventories are likely to remain low until the end of current quarter (April).

Company announced a plan to acquire  for $40 billion last September. Such a tie-up would be beneficial for Nvidia but ARM's products are used by many Nvidia competitors and in turn, there are some serious antitrust concerns. However, executives from Nvidia said during the earnings call that the company is making good progress towards acquiring ARM.

Nvidia (NVDA.US) has been trading sideways in the final quarter of 2020 and at the beginning of 2021. However, stock bounced off the lower limit of the range at $512 in January and rallied above $600 for the first time in history. Part of this gain has been erased already and stock dropped below price zone at $587. In case pullback deepens, the first support to watch can be found at 50-session EMA. Source: xStation5