Nvidia set to report after the bell: Here's what to expect

Nvidia Earnings Preview: Key Metrics, China, and Competition

Key Concepts:

• Nvidia's revenue growth as a supply-constrained story
• Importance of revenue, gross margins, and earnings for Nvidia's earnings report
• Impact of China export restrictions on Nvidia's forward outlook
• Accounts receivables and supply chain improvements
• Competition from China and Western companies
• Strategic implications of US allowing Nvidia to operate in China

Revenue and Supply Chain

• Main Point: Revenue is the top metric to watch, driven by supply rather than demand.
• Details: Nvidia's revenue growth has been consistent in recent quarters, suggesting it's limited by supply chain capacity. The demand environment remains strong.
• Analysis: The key question is how quickly the supply chain can produce Nvidia's products.
• Accounts Receivable: Concerns about accounts receivables have lessened as supply chain issues improve. Supply chain partners are increasing output expectations for Nvidia products.

Earnings Expectations and Guidance

• Main Point: Expectations are high, so Nvidia needs to deliver on revenue, gross margins, and earnings.
• Details: The earnings setup is different from previous quarters due to high optimism.
• Guidance: Nvidia will likely take a conservative approach to forward-looking guidance, potentially excluding China due to export license uncertainties. This is similar to what other semiconductor companies like AMD have done.

China and Export Restrictions

• Main Point: The impact of US export restrictions on Nvidia's China business is a key concern.
• Details: There's uncertainty about when Nvidia will receive export licenses for new China-compliant products.
• China Revenue: China represents a low double-digit percentage of Nvidia's sales.
• Alternative: Huawei is developing competitive products, offering an alternative for Chinese companies restricted from using Nvidia.
• Strategic Perspective: Allowing Nvidia to operate in China is strategically beneficial for the US, as it's better for Chinese AI to be built on US technology.

Competition

• Main Point: Nvidia has a significant lead over competitors, including those in China.
• Details: Chinese semiconductor design companies are years behind Nvidia.
• Huawei: Huawei's products are not as cost-effective as Nvidia's but provide a viable alternative in a restricted environment.

US Strategy and Revenue Share

• Main Point: The US administration's approach to Nvidia's China business has strategic and economic dimensions.
• Strategic View: Allowing Nvidia to participate in China is strategically smart for the US.
• Revenue Share: The conversation touches on whether the US should capture a share of the revenue generated from Nvidia's sales in China.

European Perspective

• Main Point: Europe may not have the same resolute mindset to contain and block China.
• Details: The example of the UK's 5G rollout and the potential for European countries to buy cheaper Huawei chips is raised.
• Alternatives: There are viable alternatives to Huawei in the 5G market, but not great alternatives to Nvidia in its market.

Conclusion

Nvidia's upcoming earnings report is highly anticipated, with revenue being the most important metric. The company's ability to meet high expectations depends on its supply chain capacity and its handling of the China situation. While competition exists, Nvidia maintains a significant lead. The US administration's approach to Nvidia's China business reflects a strategic decision to allow US companies to participate in the Chinese market, even if it means foregoing some direct economic benefits.