Nvidia CEO Jensen Huang wearing his usual leather jacket.
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We are gearing up for a big night of corporate earnings. Cisco Systems (CSCO) and Nvidia (NVDA), two stocks we own for the charitable trust, are scheduled to report their quarterly numbers after the closing bell.
Cisco is a cheap tech stock that trades at a mid-teen price-to-earnings multiple with a healthy dividend yield of about 2.60%. Usually, the market applies this type of discount on slow growers with limited margin expansion opportunities, but this Cisco is much different from the one of years past.
Under the excellent leadership of CEO Chuck Robbins, Cisco has transformed the focus of its business model from lumpy hardware sales to higher-margin, more predictable subscription-based, recurring, deferred revenue streams. On the call tonight, we’ll be paying close attention to how this transition is progressing and listening closely to how hybrid work is driving the recovery in enterprise spending as well additional opportunities in 5G, security and the cloud.
Nvidia is a bit more difficult because the stock is already one of the top performing stocks in the Nasdaq 100 with shares more than doubling year to date. This degree of outperformance makes expectations high heading into the print. However, we think Nvidia is executing exceptionally well right now. One reason for this view is what we heard from competitor Advanced Micro Devices and the big numbers its data center segment posted in its quarterly release. AMD called out pricing power on its Instinct data center GPU line.
On the consumer front, recent NPD data shows that the gaming adoption we saw throughout the pandemic has traction as “October 2021 consumer spending across video game hardware, content and accessories grew 16% vs YA, reaching an October record $4.4 billion. Year-to-date consumer spending reached $46.7 billion, gaining 12% when compared to the same period in 2020.”
On the enterprise side, we look forward to hearing more about the Omniverse, which TIME magazine called “one of the 100 Best Inventions of 2021.” With Nvidia’s Omniverse generally available and the broader suite of software offerings rapidly growing, we will be on the lookout for more software commentary that can provide deeper insights into the growth of recurring revenue streams. All that in mind, as we stated above, expectations are high into the print so expect a lot of focus on guidance and the insightful forward-looking commentary from the visionary CEO Jensen Huang. His conference call comments are a must-read.
We’ll provide deep-dive analysis into both quarters after they report tonight.
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(Jim Cramer’s Charitable Trust is long CSCO, NVDA.)
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