Nvidia's (NVDA) fiscal first-quarter sales are expected to outperform market projections, with potential for "enhanced" cash returns likely to be among the key areas of focus, BofA Securities said in a note e-mailed Tuesday.
The brokerage expects the technology bellwether to outperform sales estimates by 2% to 4%, or about $2 billion to $4 billion, relative to current sell-side expectations for the three-month period, in line with historical trends.
In February, Nvidia projected first-quarter consolidated revenue at $78 billion, plus or minus 2%. The current consensus on FactSet is for $78.91 billion.
The chipmaking giant is scheduled to report results after the closing bell Wednesday.
Beyond the company's key financial metrics, investor focus is expected to be on its potential for "enhanced" cash returns, among other things, BofA analyst Vivek Arya said in a note to clients.
"While (free cash flow) returns are not the only driver of stock performance, we do believe they expand ownership and signal durability, especially when investors start to get concerned about the sustainability of growth," Arya wrote. "(Nvidia's) FCF returns averaged only 47% in the past three years, well below peers returning on average 80% and even below (Nvidia's) own 80% average in the prior decade."
Instead, the company's investments have been focused on the AI ecosystem and have been "unfairly" seen as circular or vendor financing, according to the note. "Boosting shareholder returns could expand ownership, close (Nvidia's) valuation gap and minimize circularity concerns."
The company has several factors, such as its product and customer breadth, which help establish "an unparalleled standardized infrastructure" that would be tough for other merchant or custom chip competitors to overtake, BofA said. The company is expected to sustain a roughly 70% revenue share in an estimated $1.7 trillion AI total addressable market by 2030, according to the note.
The brokerage maintained its buy rating on the Nvidia stock, with a $320 price objective, citing its "dominance in the fastest growing tech market and its compelling valuation."
Nvidia shares were up 0.6% in Tuesday afternoon trade, bringing its year-to-date gains to 20%.
Recently, Wedbush Securities and RBC Capital Markets projected Nvidia would deliver another strong quarter and issue an upbeat guidance for the current three-month period.
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