Nvidia Corp. just delivered an outlook for the latest quarter that was far lower than what analysts were expecting, as the chip company deals with a bevy of challenges including waning demand for its gaming and professional-visualization products, macroeconomic pressures on spending, and supply-chain disruptions.
Its shares were down about 4% in premarket trading Thursday.
The company’s downbeat revenue forecast, which came in nearly $1 billion shy of the FactSet consensus, wasn’t particularly surprising on Wall Street, seeing as Nvidia
had already telegraphed its challenges in gaming when it preannounced a sharp revenue miss for the latest quarter earlier in August.
But while analysts weren’t particularly optimistic headed into Nvidia’s most recent report, now questions turn to the future. Specifically, a key debate on Wall Street concerns whether Nvidia’s stock has been “de-risked,” or made safe again, after management’s moves to realign expectations.
“We feel like the October quarter should mark the revenue bottom for NVIDIA,” Piper Sandler analyst Harsh Kumar wrote in a note to clients.
He highlighted that Nvidia seems to be “taking the tough medicine in gaming” but that its management team expects a normalization in gaming inventory by year-end.
“We truly believe NVIDIA’s data center business should normalize shortly, while gaming growth should start next year,” Kumar wrote. “These trends, along with the AI and Omniverse momentum, keep us optimistic about the future.”
He has an overweight rating and $235 price target on the shares.
Opinion: Nvidia has faced this type of downturn before, and seems to have a specific goal in mind this time
Cowen & Co.’s Matthew Ramsay, however, expressed a bit more caution on the overall picture.
“Gaming inventory/crypto correction painful but necessary and welcome,” he wrote. “However, despite strong upcoming Lovelace and Hopper product launches in Gaming and Datacenter, respectively, we left tonight’s call with the same feeling as we entered it…just enough nitpick doubts in Datacenter to prevent the ‘all clear’ for the stock.”
Ramsay noted that it wasn’t particularly shocking to see Nvidia take inventory write-downs for the gaming business, though he wasn’t expecting the company to do so in the data-center business as well.
“The inclusion of Datacenter inventory write-downs came as a surprise, particularly when combined with supply chain issues resulting in a push-pull in customer order patterns and deliveries,” Ramsay wrote. “Management attributed this to a material reduction in China hyperscale spend given macro conditions, exacerbated by kitting issues, especially in networking…that negatively impacted the company’s ability to fully ship to demand.”
He maintained an outperform rating and $200 price target on the stock, which has fallen 41% so far this year as the S&P 500
has lost 13%.