Gaming, Data Center Chip Demand to Aid NVIDIA (NVDA) Q1 Earnings

NVIDIA Corporation NVDA is slated to report first-quarter fiscal 2023 results on May 25. The company’s first-quarter results are likely to reflect the benefits of strong demand for its graphic chips from the gaming and data center markets.

The robust growth in the GeForce desktop and notebook graphics processing units (GPUs) is boosting NVIDIA’s gaming revenues. Moreover, the company is benefiting from the pandemic-induced work-from-home and online-learning wave. A surge in the Hyperscale demand is a tailwind for the company’s data center business.

The Zacks Consensus Estimate for the data center segment’s fiscal first-quarter revenues is pegged at $3.56 billion, indicating a jump of 74% year over year. Its gaming division’s sales are expected to surge 24% year over year and 4% sequentially to $3.42 billion.

Click here to know how NVDA’s overall fiscal first-quarter performance is anticipated to be.

NVIDIA Corporation Price and EPS Surprise

NVIDIA Corporation price-eps-surprise | NVIDIA Corporation Quote

Robust Data Center Chip Demand

The data center business presents solid growth opportunities for NVIDIA. As more businesses are shifting to the cloud, the need for data centers is surging. This is likely to have supported NVIDIA’s quarterly performance. The increase in the Hyperscale demand and the growing adoption in the inference market are anticipated to have acted as tailwinds as well.

The rising adoption of Conversational AI among hyperscale customers is likely to have been a key driver during the period in discussion. NVDA considers Conversational AI to be a powerful catalyst for the company in training and inference. Also, the rising adoption of Natural Language Processing by cloud players is expected to have been an upside during the fiscal first quarter.

Additionally, NVIDIA’s data center business is likely to have continued the growth momentum during the first quarter on the accelerated adoption of cloud-based solutions amid remote-working and online-learning trends.

Lockdowns, travel restrictions and social-distancing measures adopted by governments worldwide to contain the spread of COVID-19 have boosted the usage of online and e-commerce services globally. Also, the pandemic-induced work-and-learn-from-home wave is stoking demand for cloud storage. Therefore, data center operators are enhancing their capacities to accommodate this demand spike for cloud services.

The growing adoption of the company’s T4 GPU in public clouds makes NVIDIA optimistic. Solid public cloud deployments and higher demand for AI video analytics applications are fueling demand for its T4 GPUs.

Continued Momentum for Gaming Chips

In the last reported quarter, revenues from the gaming business unit shot up 37% year over year and 6% sequentially to $3.42 billion on higher sales across the company’s notebook and desktop gaming GPUs and game console system-on-chips.

Pandemic-induced stay-at-home instructions are spurring demand for NVIDIA’s gaming chips as people are surfing games to stay engaged and entertained indoors.

Additionally, better visualization and speed are needed for a thrilling gaming experience, which NVIDIA successfully provides through its portfolio of Pascal architecture-based GPUs. Moreover, with the massive emergence of multiplayer online games and Gaming-as-a-Service concepts, demand for GPUs has been shooting up exponentially. The trend is likely to have positively impacted NVDA’s gaming business during the to-be-reported quarter.

Zacks Rank & Other Stocks to Consider

NVIDIA currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader technology sector are ON Semiconductor ON, MaxLinear MXL and Analog Devices ADI. ON sports a Zacks Rank #1 (Strong Buy), while MaxLinear and Analog Devices each carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for ON's second-quarter 2022 earnings has been revised to $1.26 per share from $1.05 over the past 30 days. For 2022, earnings estimates have moved north by 17.5% to $4.91 per share in the past 30 days.

ON's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 2.8%. Shares of ON have rallied 43.6% in the past year.

The Zacks Consensus Estimate for MaxLinear's second-quarter 2022 earnings has been revised upward by 10 cents to $1.02 per share over the past 30 days. For 2022, MaxLinear's earnings estimates have moved north by 36 cents to $4.07 per share in the past 30 days.

MaxLinear's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 7.1%. Shares of MXL have soared 4.4% in the past year.

The Zacks Consensus Estimate for Analog Devices' third-quarter fiscal 2022 earnings has been revised upward by 24 cents to $2.42 per share over the past seven days. For fiscal 2022, earnings estimates have moved north by 9.6% to $9.24 per share in the past 60 days.

Analog Devices' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 6%. Shares of ADI have decreased 1.3% in the past year.

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