Should You Buy NVDA Stock Ahead Of Q4 Earnings?

Nvidia Corporation is set to report its Q4 2017 earnings on Feb 9. Can NVDA stock maintain its current momentum following the upcoming earnings announcement?

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Santa Clara, California-based NVIDIA Corporation (NASDAQ:NVDA) is scheduled to report its Q4 FY 2017 earnings after the bell, on Feb 9. Current Wall Street consensus expects the company to report EPS of 83 cents per share on revenue of $2.1B, implying 137% YoY growth in earnings and 50% topline growth. Nvidia's stock price more than tripled in 2016, having gained 220% in the year. NVIDIA stock has continued its rally into 2017, up 8% in the year-to-date, outpacing the 5.3% gains in the Nasdaq Composite (INDX:COMPX) and the 2.6% gains in the S&P 500 (INDX:SPAL). Can NVIDIA deliver yet another strong earnings report and keep the current momentum in NVDA stock going?

NVIDIA Analyst Estimates Have Been Rising

The current analyst estimates expect Nvidia to report EPS of 83 cents per share on revenue of $2.1B, implying a solid topline/earnings growth on a YoY basis. While the current estimates anticipate strong YoY performance, its interesting to note that the analyst consensus has trended upwards through the quarter. The analyst consensus EPS was at 56 cents/share 90 days ago, which equates to a 48% rise in the consensus over the last 90 days. The revenue estimate has also climbed through the quarter, soaring by 24.33% over the last 90 days.

NVDA Earnings History and Whisper number

Nvidia corporation has a solid track record of soaring past analyst estimates. The company has beaten analyst estimates in each of the last 25 quarters. The company has beaten the analyst estimates by 8.25 cents on average over the last 4 quarters, implying an average earnings surprise of 20.9% over the period. The company has also beaten the higher end of Wall Street's EPS/revenue estimates in each of the last 4 quarters, apart from outperforming the high end of its guidance in the same time period. The management had issued the following Q4 2017 guidance on the last earnings call: "Now, turning to the outlook for the fourth quarter of fiscal 2017, we expect revenue to be $2.1 billion, plus or minus 2%. Our GAAP and non-GAAP gross margin are expected to be 59% and 59.2%, respectively, plus or minus 50 basis points. GAAP operating expenses are expected to be $572 million. Non-GAAP operating expenses are expected to be approximately $500 million. And GAAP and non-GAAP tax rates for the fourth quarter of fiscal 2017 are both expected to be 20%, plus or minus 1%."

Modeling the above guidance gives a Non-GAAP EPS in the range of $1.05-$1.17, implying that NVIDIA could deliver yet another earnings surprise. It appears that Wall Street has been extremely conservative with its estimates. The margin of earnings surprises over the last couple of quarters has been pretty huge, indicating that Wall Street is still catching up to the secular growth trends NVIDIA is currently riding. The current earnings whisper expects NVDA to report EPS of 87 cents per share, or a 4 cent beat, further strengthening the case of NVIDIA delivering an earnings beat in the upcoming report. All in all, Nvidia looks set to trump analyst estimates heading into the Q4 2017 earnings report.

NVIDIA Short Interest Data Indicates An Earnings Beat Is On The Cards

In a recent article, we had highlighted that the short interest in NVIDIA stock has fallen significantly over the last few reporting cycles. In fact, the 36.7M shares shorted at the end of the last reporting cycle (Jan 13) was the lowest print in the last 12 months (24 reporting cycles).  The short interest data indicates that bearish sentiment has been dropping ahead of the Q4 earnings announcement. Investors expect NVIDIA stock to rally in the near-term, and with the earnings announcement being the only major near-term event, it would be reasonable to conclude that NVDA stock investors are anticipating an earnings beat on Feb 9.

Putting It All Together

Nvidia corporation is set to report its Q4 FY2017 earnings on Feb 9, after market close. Wall street expects the company to report EPS of 83 cents/share on revenue of $2.1B. These estimates have risen by 48% and 24.33%, respectively, over the last 90 days. The increasing trend in the Wall Street expectations and the seemingly conservative estimates vis-a-vis the management guidance indicate that NVIDIA is setting up for an earnings beat, yet again. The current earnings whisper, 87 cents/share, also implies an earnings beat. Given NVIDIA's history of earnings surprises and the recent short interest data, an earnings beat is highly likely in the upcoming earnings report. Investors looking to invest in the semi-conductor space, in general, and NVDA stock in particular, should buy into NVIDIA stock ahead of the earnings announcement in order to benefit from a potential post-earnings rally in the NVDA stock price.