Nvidia Q2 FY2021 Earnings Soar to $3.9B with 66% Gross Margin - August 2020

Nvidia (NVDA) delivered outstanding Q2 FY2021 results that outpaced analyst predictions, showcasing strong growth amid a challenging economic landscape.

Highlights

• Adjusted EPS reached $2.18, far exceeding the anticipated $1.24.
• Revenue hit an unprecedented $3.9 billion, marking a 49.9% year-over-year increase.
• Adjusted gross margin climbed to 66.0%, nearly 6 percentage points higher than the previous year.
• Acquisition of Mellanox Technologies Ltd. significantly contributed to revenue expansion.

Detailed Overview

For the quarter ending July 26, 2020, Nvidia reported a remarkable 75.8% rise in adjusted EPS, surpassing estimates by 10.7%. The company’s revenue growth was fueled by a historic shift where data center sales outpaced gaming revenue for the first time, reflecting Nvidia's strategic pivot toward enterprise clients.

Founder and CEO Jensen Huang stated, "The rapid adoption of NVIDIA computing is propelling record revenue and outstanding growth. Despite pandemic-related challenges in professional visualization and automotive sectors, our strong positioning in gaming, AI, cloud computing, and autonomous machines primes us for leading the next industrial revolution globally."

This analysis builds upon the original earnings preview published on August 18, 2020.

What Investors Should Watch

Amid the COVID-19 pandemic, Nvidia benefits from surging demand for high-performance computing chips driven by remote work, online education, and gaming. The company’s Q2 FY2021 earnings report, released August 19, 2020, is expected to reflect significant increases in adjusted EPS and revenue.

Analysts are closely monitoring Nvidia’s adjusted gross margin, a critical profitability metric for semiconductor companies, anticipating a modest year-over-year increase.

Over the past year, Nvidia's stock has outperformed the broader market, delivering a 189.8% total return compared to the S&P 500's 15.7%, despite initial pandemic-related volatility.

Nvidia has exceeded earnings expectations for four consecutive quarters, with Q1 FY2021 adjusted EPS growing 104.5% and revenue increasing 38.7%. The Q4 FY2020 results marked a major turnaround with a 135.5% surge in adjusted EPS and a 40.8% revenue rise, ending a streak of declines.

For Q2 FY2021, analysts forecast a 59.7% jump in adjusted EPS and a 41.6% revenue increase, the fastest growth pace since Q1 FY2019.

Gross margin remains a vital metric for Nvidia, given the commodity nature of semiconductors. The adjusted gross margin hit 65.8% in Q1 FY2021, the highest in 17 quarters, while Q2 is expected to show a slight year-over-year increase to 61.9%, though below recent peaks.

Source: Visible Alpha

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