Earnings Watch: Will NVIDIA's Q3 earnings mark the top?

Home Depot

The largest US home improvement retailer is set to report Q3 earnings on Tuesday at 14:00 GMT with analysts expecting EPS $2.27 up 23% y/y and revenue $26.3bn up 5%. The US housing market is already cooling so it naturally begs the question when it spills into home improvement. Our expectation is that things will turn for the worse in 2019 and with that activity in the US housing market in general, including home improvement. Home Depot has managed to increase its share price since the Great Financial Crisis through a combination of significantly higher operating margins and shares repurchases engineering very high EPS growth. Any negative change to the outlook from Home Depot should be noted by investors as the US housing market is important for the overall market in the US.

Tencent Holdings

China’s most iconic technology company reports Q3 earnings on Wednesday with analysts expecting EPS 1.99 up 10% and revenue at CNY 80.8bn up 24% showing profit margin squeeze expected. While still impressive growth rates analysts have lowered their Q3 EPS estimate 15% in the past six months as the new Chinese regulation to curb gaming addiction has hit growth expectations. The recent developments indicate that starting in the new year children under 18 years will only be allowed by law to play games for up to two hours per day. This will undoubtedly have implications for Tencent profit growth that has been linked to gaming revenue. The recent mobile-gaming sales figures in China also show that Tencent’s growth has flatlined.

NVIDIA

The company reports Q3 earnings on Thursday after the close with sell-side analysts expecting EPS $1.92 up 44% y/y and revenue $3.24bn up 23%. Analysts have lowered their Q3 EPS estimate by 4% in the past six months as the US-China trade war has become more negative. As the chart below shows, the semiconductor industry has been through an expansive period with EPS up more than 100% in the past two years. Our view is that growth is peaking and that semiconductor stocks will disappoint in 2019 across the board as the tension between the US and China will rise. Many investors are sitting on 100% gains in global semiconductor stocks and with the industry down 6% year-to-date we recommend investors to rethink their exposure to this industry. NVIDIA’s Q3 results are a key indicator for the industry. AMD’s Q3 disappoint is also worth taking into account ahead of NVIDIA’s results.