Nvidia Q2 FY 2022 Earnings Preview: Anticipated Growth & Gross Margin Insights for August 2021

Focus on Nvidia's Gross Margin and Earnings Growth

Highlights to Watch

• Analysts forecast an adjusted EPS of $4.08, up from $2.18 in Q2 FY 2021.
• Gross margin is projected to increase year-over-year.
• Revenue expected to rise significantly, driven by strong demand in gaming chips and cloud computing.

During the pandemic, Nvidia Corp. (NVDA) experienced a surge in sales fueled by heightened demand for its processors and price increases caused by the global semiconductor shortage. This growth has elevated Nvidia into the top 10 U.S. public companies by market capitalization. Additionally, Nvidia is broadening its portfolio to include artificial intelligence, machine learning, and data-center services.

Investors are closely monitoring whether Nvidia can sustain this rapid expansion as it reports Q2 FY 2022 earnings on August 18, 2021. The company’s fiscal year 2021 ended January 31, 2021, and it is now operating in FY 2022. Analysts anticipate strong growth in both adjusted earnings per share (EPS) and revenue, albeit at a more moderate pace compared to the previous quarter.

A key focus will be Nvidia’s gross margin, a critical indicator of profitability that reflects how much profit is generated from each sales dollar. Companies that manage costs effectively tend to achieve higher margins, especially in commodity-driven markets. Analysts expect Nvidia’s gross margin to rise compared to the same quarter last year.

Over the past year, Nvidia’s stock performance has largely mirrored the broader market, with some volatility. After a sharp decline in March 2021 following the Q4 FY 2021 earnings release, shares rebounded and gained momentum through spring. Since early May, Nvidia shares have outperformed the market significantly, delivering a total return of 62.0% over 12 months, compared to 32.5% for the S&P 500.

Nvidia’s Earnings Performance

Nvidia’s adjusted EPS has seen rapid growth recently. In the last 18 quarters, the company recorded year-over-year (YOY) EPS declines only four times between Q4 FY 2019 and Q3 FY 2020. Since then, YOY gains have been robust, with three of the last six quarters more than doubling adjusted EPS compared to the prior year. For Q2 FY 2022, analysts forecast a slightly slower but still impressive YOY EPS growth of 87.2%.

Revenue growth has also been strong, aside from a few weak quarters. Like EPS, revenue declined during four quarters from Q4 FY 2019 to Q3 FY 2020. Otherwise, Nvidia’s revenue has grown between 20% and 83% each quarter over the past four years. For Q2 FY 2022, analysts expect revenue to increase by 63.5% YOY. This would surpass Q2 FY 2021’s growth but represent a slowdown from Q1 FY 2022.

Source: Visible Alpha

Why Gross Margin Matters

Gross margin, calculated as total revenue minus cost of goods sold (COGS) divided by total revenue, is a vital measure of profitability. As semiconductors are largely commodity products with cyclical pricing and limited pricing power, maintaining low costs is essential to maximize profits during favorable market conditions.

From Q2 FY 2017 through Q2 FY 2021, Nvidia’s gross margin steadily increased from 58.1% to 66.0%. However, it plateaued somewhat afterward, dipping in Q3 and Q4 FY 2021 and slightly improving to 66.2% in Q1 FY 2022. For Q2 FY 2022, analysts predict a gross margin of 66.4%, potentially the highest in at least five years.

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