Earnings This Week: NVIDIA, Baidu and Snowflake

Corporate earnings calendar: August 21 - 25

We are approaching the end of the US earnings season but the best may have been saved for last as markets brace for results out from Wall Street’s favourite stock of 2023, NVIDIA, when we will discover whether the chipmaker can meet the hype around AI.

Other big names to look out for include cloud computing outfit Snowflake, Chinese search engine Baidu, software giant Workday and semiconductor firm Marvell. Retailers will remain in focus too, with updates due out from Lowe’s, Macy’s, Kohls, Nordstrom, Gap, Dick’s and several other chains.

The UK is quiet this week, with results out from mining giant BHP Group, recruiter Hays, oil and gas firm Harbour Energy and oilfield service providers John Wood and Hunting.

Below is a calendar outlining all the key earnings we are keeping an eye on this week:

NVDA stock: NVIDIA Q2 earnings preview

NVIDIA has been the best performer in the S&P 500 this year, with its valuation having trebled since the start of the year despite the pullback we have seen in the share price during August. That is because it is the only major company set to reap bumper financial rewards from the eruption of artificial intelligence in 2023, with businesses eagerly snapping-up its advanced chips to upgrade their systems so they are ready for the breakthrough technology.

In fact, NVIDIA is forecast to report revenue of $11 billion, which would mark a new quarterly record! That would be up 65% from the year before and, more significantly, mark a big jump from the $7.2 billion in sales we saw in the previous quarter to demonstrate the huge surge in AI-driven sales over recent months. Datacentre revenue is expected to be more than double what we saw last year! Outside of AI, NVIDIA’s revenue will also be boosted by its arm that sells chips used in gaming consoles, where sales are forecast to grow (16.5%) for the first time in over a year.

This new wave of AI demand is benefiting the bottom-line too, with the rise in demand for its pricey chips set to help adjusted earnings quadruple from the year before to $2.07.

Wall Street is even more bullish than the markets. The average target price among the 51 brokers that cover the chipmaker has soared to $515 today from less than $300 just three months ago – and some have set their targets as high as $800! NVIDIA currently trades at around $420. Analysts and brokers are, generally speaking, extremely bullish ahead of the results and see scope for NVIDIA to deliver a beat and potentially upgrade its outlook for the rest of the year once again. NVIDIA is already on course to deliver record results in 2023, with markets currently anticipating a 61% jump in annual sales and for earnings to rise 2.4-fold!

With that in mind, the outlook for the third quarter will be highly influential on how markets react. Wall Street is looking for NVIDIA to target revenue of $12.4 billion, which would be more than double what we saw last year.  

There is widespread agreement that demand is not an issue, but the biggest factor that will decide just how well NVIDIA will do this year is how quickly it can keep up. Some have suggested demand is running up to 50% ahead of supply. That should provide NVIDIA a healthy and lengthy backlog to work through, but investors will want to know how agile it is in meeting rising demand whilst it has a lead over rivals. It currently has a monopoly and needs to take advantage as much as possible, given it is highly likely that rivals will eventually catch up considering the size of the opportunity is too big for one company to dominate.

High expectations, plus its huge valuation premium over its rivals, suggests the bar is high ahead of the results but markets are confident it can clear it. It does, however, suggest meeting expectations may not be enough to impress and that it wouldn’t take a lot to disappoint.

BIDU stock: Baidu Q2 earnings preview

Chinese internet search giant Baidu is reporting results at a tough time as global markets are growing increasingly nervous about the Chinese economy, with the country’s vast property sector on shaky ground at a time when the economy is already showing signs that both domestic and international demand is waning. The recovery since reopening earlier this year has been lacklustre to say the least, and the uncertain outlook is currently weighing heavily on US-listed Chinese stocks.

Still, Baidu is set to show it is still growing. Revenue is forecast to rise 12% from last year to RMB33.29 billion and adjusted earnings per ADS is seen rising 2.3% to RMB16.15. That is expected to be driven by double-digit sales and profit growth from its core search engine operations that feeds on advertising, and because profits it earns from its majority stake in iQIYI (which also reports results this week) are forecast to more than double.

The more tepid growth at the bottom-line will be largely down to the fact Baidu is paying much more in tax, which wasn’t really a factor last year. Other metrics that exclude this will grow faster, with adjusted Ebitda expected to jump 19% to RMB8.39 billion.

Baidu launched its AI chatbot named ERNIE Bot in China earlier this year and it has said it plans to ‘steadily incorporate’ into ‘all our businesses’. In fact, it is building an entire new ecosystem around ERNIE Bot, making it central to its future. “Generative AI represents a new paradigm shift in the AI, and Baidu is poised to take advantage of this massive market opportunity. Baidu will continue to invest unwaveringly in this area in the coming quarters,” co-founder and CEO Robin Li said back in May. Investors will therefore be expecting to see some tangible progress on the AI front for the rest of this year.

SNOW stock: Snowflake Q2 earnings preview

Snowflake has continued to grow, attract new customers and gradually encourage them to spend more, but it is not immune to more stringent IT budgets and revenue is forecast to grow at its slowest rate in almost two years this quarter.

The company, which provides services that store and analyse large amounts of data in the cloud for an array of businesses, is forecast to report a 33% year-on-year rise in quarterly revenue to $662.8 million. The majority of that comes from product revenue, which is expected to rise 34% to $624.9 million. Snowflake continues to attract new customers and they are proving to be very sticky once they come onboard. That is also seeing customers gradually increase their spend, leading to more customers contributing over $1 million in annual sales.

The key profit measure to watch is adjusted operating profit, which is predicted to come in at $16.2 million, turning from a loss the year before and marking the fourth consecutive quarter of profit.  

There will be concerns over the outlook as the slowdown continues to bite. There is hope that Snowflake can be among those companies that counters slower growth in more mature markets with new catalysts stemming from AI and large-language models, which could be key to maintaining strong retention rates and its ability to upsell as companies look for the best-value offerings while simultaneously ramping up AI investments. The outlook for the third quarter will therefore be key, with Wall Street looking for Snowflake to target product revenue of $674.9 million, which would be up around 29% from the year before and mark another period of slower growth.

WDAY stock: Workday Q2 earnings preview

Workday is a stock worth watching because it can provide an idea of how the wider corporate space is performing as it provides finance, HR and other management software that keeps businesses running. The results could also set the tone ahead of results out from CRM software giant Salesforce, which is likely to also be on the move when Workday reports.

Workday is forecast to report a 15.4% rise in revenue in the second quarter to $1.77 billion, with subscription revenue estimated to rise 18% to $1.61 billion. That would mark the fifth consecutive quarter of slower growth. While Workday provides vital services for businesses, it is not immune to more disciplined IT budgets in the current environment. Adjusted EPS is forecast to grow 51% from last year to $1.26 thanks to improved margins.

Workday is among the wave of companies that have promised to infuse AI and machine learning across its suite of products and services.

PTON stock: Peloton Q4 earnings preview

Peloton continues pedalling down the long road to recovery after hitting severe trouble once the lockdown-induced demand we saw during the pandemic unwound, although it has warned that it could be a particularly rough quarter.

Revenue is forecast to be down 5.5% from last year in the fourth quarter at $641.2 million. Subscription revenue is seen rising 12.5%, although that would be the tenth consecutive quarter of slower growth! Plus, it won’t be enough to counter the ongoing fall in sales of its exercise equipment, with revenue estimated to drop 29% this quarter.

The fourth quarter is seasonally weak for subscriber growth and Peloton has already communicated it will report a decline. In fact, it said it is bracing for one of the most challenging periods for growth on record in the fourth quarter. The hope is that Peloton’s decision to relaunch its brand in the period will help it defy the usual downturn. That is in response to changing habits, as the majority of Peloton users are not even using its flagship exercise bike anymore. The success of the relaunch could also be a key factor on how it performs in the new financial year, when Wall Street believes it can return to growth after two years of problems and edge closer to profitability.

Adjusted Ebitda is the key profit measure to watch. Losses have been narrowing and analysts are anticipating it to come in at $19.5 million in the fourth quarter. Wall Street believes Ebitda is on the cusp of turning positive, leaving scope for Peloton to impress if it can get there a quarter early. It is also moving closer to generating cash once again so it can be self-sufficient, although this won’t happen in the fourth quarter considering it has to pay out some $75 million to settle a patent license dispute with DISH Technologies.

Hays share price: Hays FY earnings preview

Hays has taken the element of surprise out of its full year results considering it has already provided sales figures and confirmed adjusted operating profit will come in around £196 million, which would be down from the extremely tough comparatives from the year before when profits more than doubled to over £210 million. Annual revenue should be up about 10% to 11% at £7.29 billion.  

However, we know that net fees have come under pressure more recently, having declined 2% in the final three months of the year with all segments under pressure. That is because we have seen candidates more cautious about moving jobs, which has resulted in fewer fees. However, this has been partly countered by more fees from placing temporary workers.

“Volumes remain stable overall in Temp and Contracting, with modestly lower numbers of new assignments offset by greater contract extensions, and we continue to benefit from positive effects of mix and margins. In Perm, incoming job flow is modestly down year-on-year, but was broadly sequentially stable through the quarter, and we continue to see lengthening of time-to-hire,” Hays said just over a month ago.

Markets anticipate the new financial year will be even tougher, forecasting more challenging conditions across the board as macroeconomic conditions are seen weakening the labour market. Hays says its markets are still plagued by skills shortages and wage inflation.

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