NVIDIA Corporation (NVDA): Why Are Expectations Lower?

On Thursday, NVIDIA Corporation (NASDAQ:NVDA) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they’ll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise.

The mobile-device space has given chip makers like NVIDIA Corporation (NASDAQ:NVDA) huge potential for growth, but fierce competition throughout the industry has created winners and losers in each market niche within the sector. Let’s take an early look at what’s been happening with NVIDIA Corporation (NASDAQ:NVDA) over the past quarter and what we’re likely to see in its report.

Stats on NVIDIA

Source: Yahoo! Finance.

Why are expectations for NVIDIA’s earnings lower?
Analysts have dramatically downgraded their view on NVIDIA Corporation (NASDAQ:NVDA)’s earnings in recent months, cutting their first-quarter estimates by more than half and slashing more than $0.25 per share from their full-year fiscal 2014 expectations. Yet the stock has performed well, rising 13% since the end of January.

One reason for the stock’s success may be that NVIDIA Corporation (NASDAQ:NVDA) has come out with several promising products. The company unveiled its Tegra 4i mobile chip in February, which offers integrated LTE-network capability and could help NVIDIA move more dramatically into the smartphone space. Archrival QUALCOMM, Inc. (NASDAQ:QCOM)‘s Snapdragon 800, which is the closest competitor to the Tegra 4i, is more than twice its size, according to NVIDIA. It’ll likely take until the end of the year for devices using the Tegra 4i to come to market, but NVIDIA Corporation (NASDAQ:NVDA) stands to challenge QUALCOMM, Inc. (NASDAQ:QCOM)’s traditional dominance of smartphones as a result. Moreover, the company will use a Tegra 4 processor for its Project Shield portable gaming device, which will show off NVIDIA’s traditional graphics dominance as well as providing an ecosystem for showing gaming and streamed-programming content on HDTVs.

Yet NVIDIA still faces the structural challenge of having some of its most lucrative potential markets closed off to it. Although NVIDIA Corporation (NASDAQ:NVDA) has done a great job of tapping the tablet market, including the Nexus and Surface RT lines, best-sellers like the iPad and Galaxy Tab are off-limits to the company because their makers keep processor-design in-house. Rumors that QUALCOMM, Inc. (NASDAQ:QCOM) has captured the next-generation Nexus 7 processor spot from NVIDIA Corporation (NASDAQ:NVDA) are also troubling.