NVIDIA (NVDA 161.51, +1.93, +1.2%) will report its Q1 results after today's closing bell, followed by a conference call at 17:30 ET. 

The Capital IQ consensus expects the company to report a 60.5% yr/yr contraction in EPS to $0.81 on a 31.6% decrease in revenue to $2.195 bln. 

  • NVIDIA had a long history of handily beating quarterly earnings and revenue expectations, but that trend was stopped when the company reported weak Q3 results in November. The company beat Q4 earnings expectations in February, but revenue was shy of expectations while revenue guidance for Q1 was also weaker than expected. 

  • The company is still trying to overcome an underwhelming launch of its RTX line of video cards, which hit the market late last year. High-end cards from the latest product line have enjoyed good popularity, but the company has been struggling to satisfy mid-level demand at a price point that is accepted by customers in that cohort. 

    • The RTX line of video cards was launched at significantly higher prices than the preceding product line. This was largely due to blistering demand for mid-level cards from the previous generation, which could be used for mining cryptocurrencies. Prices of those cards soared in 2018, which emboldened NVIDIA to launch its next generation of cards at a higher price point. However, the collapse in cryptocurrency prices in late 2018 revealed the true demand in the market. 

  • NVIDIA's inventory reached a record of $1.575 bln in Q4. Inventory growth is not unusual, since the company is continuing to grow the datacenter and automotive segments of its business but the market would like to see the ability to pass some of its inventory onto retailers. This would send a positive signal about demand. 

  • NVIDIA's gross margin contracted for three quarters in a row after reaching a record of 64.48%. The company reported a gross margin of 54.74% in Q4, which was the lowest level in five years. The market would like to see a reversal in the recent trend. 

TECHS:

NVIDIA trades at 30.5x forward earnings expectations, which represents a discount to AMD's (AMD 28.18, +0.60, +2.2%) 36.0x forward multiple.

TRADE: NVDA JUN 140P