1 Earnings Report That Could Move the Market

**Jon Quast** (0:02)
There's one earnings report that could move the market. Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. My name is Jon Quast. I'm your host today, and I'm joined by our guests, Matt Frankel and Rachel Warren. Today, we're going to dive into our mailbag a couple of times to talk about data centers, also talk about mergers and acquisitions. But first, we wanted to get to our kind of news of the week. This week, Nvidia is going to report quarterly earnings results.
Just to share an anecdote from over the weekend, it's amazing that there are some people who still don't know what Nvidia is, and I had to explain it to somebody, so I want to do that here in the podcast, not take for granted that everybody knows what Nvidia is. This is a $5 trillion company. So, very, very important. Really got its start in gaming, but those GPUs that it makes are what is powering the AI revolution, and these are what are being bought up like crazy to fill the data centers that you might have heard about that are going in around the country. So, very, very important company, and it is reporting its earnings later this week, Wednesday to be precise. So, just as we get started here, Matt, tell us about Nvidia and what we should look forward to in this report.

**Matt Frankel** (1:23)
Yeah. Well, I mean, just to put what you said in a little more perspective, Nvidia actually invented the GPU, and they have roughly a 95 percent market share in the data center GPU space. So, they're a dominant player. That's why all these data centers that everyone's pushing back, being built in their towns, that it's their chips that are filling them.
So, they're expected to report about $92 billion in revenue this quarter, $92 billion with a B.
Their management guided for $91 billion, but honestly, investors kind of just simply assume that they're going to beat expectations at this point. It's a pretty fair assumption given the past few quarters. So, that would be roughly 100 percent year-over-year growth, as well as a sequential acceleration, meaning that the growth rate from quarter to quarter is expected to pick up. And that's off of an already pretty enormous revenue base. So, I mean, of course, data center is the big piece to watch. They do other things, but quite frankly, everything else Nvidia does, their gaming chips that you mentioned, Pro Visualization, which is like graphic design chips and things like that. The Auto Division, they make chips for automotive use. They're essentially rounding errors at this point compared to the data center business.

**Jon Quast** (2:30)
Yeah, and they would be enormous standalone companies if they were standalone. But I just want to circle back to what you just said here. We're talking about the world's most valuable company, growing revenue at 100 percent year-over-year, doubling year-over-year. I mean, this is just absolutely astonishing. One of the other astonishing things, if that wasn't astonishing enough, is Nvidia's margin over the last decade. Ten years ago, a 58 percent gross margin, more or less, and that's good. But right now, sitting at 74 percent gross margin, basically for every $100 a product that they sell, it only costs them $36 to make it in direct costs. Obviously, there's operational costs as well. But $74 gross profit per 100 that they sell.
Is this something that investors should watch in the upcoming report?

**Matt Frankel** (3:17)
Yeah, for sure. And it's something I'll definitely be keeping an eye on. The margins, it's not just because Nvidia got a lot bigger over the past ten years. That's definitely part of it. Companies get more efficient as they scale.
A lot of it is because of the new big data center build out. Nvidia has a lot of pricing power. They can charge whatever they want. They're essentially sold out of chips for data centers for the next couple years.
So right now, they can charge whatever they want. So I'm going to be really watching that because it's a great indicator of pricing power. And I'm especially interested because AMD just rolled out its first full scale rack system for data centers. So competition is heating up. That 95% market share, AMD is trying to take some of it. So the margins are going to be a good indicator of whether or not they're successful.

**Jon Quast** (4:02)
So, Rachel, let's bring you in here because obviously higher gross margin, good. And that could start to come down feasibly. Let's say that there's just not as much demand or if competition starts coming in, what would be a level of gross margin that it comes down to that you would start to be concerned about the competitive nature of the market?