Nvidia inventory will just be a data center story for the foreseeable future

Nvidia inventory will just be a data center story for the foreseeable future

Nvidia Corp. was built around video games, but at least for the rest of the year, investors and analysts won’t be concerned about games when pricing stocks.

Nvidia NVDA,
-4.57%
slashed its second-quarter revenue forecast by $1.4 billion earlier this month, revealing that gaming revenue will drop more than 30% from last year as the lack of gaming card supply quickly fades. turned into oversupply amid the “crypto winter” and a pullback in pandemic booms for gaming and personal computer sales. Analysts now expect data center and gaming sales – which have been battling for revenue supremacy among Nvidia’s segments in recent years – to show a sharp split in sales, with the data center well in the lead.

That’s why keeping up the pace of growth in data center sales is so crucial to Nvidia’s stock performance for the rest of the year, and the warning didn’t give much confidence. Following Nvidia’s announcement, analysts lowered their second-quarter data center sales forecast to $3.81 billion from $4.06 billion, and the third-quarter consensus dropped to $4.05 billion, $4.37 billion, according to FactSet.

“While the business is risk-free at this point because of gaming weakness, there is still some uncertainty surrounding the data center,” wrote Morgan Stanley’s Joseph Moore, which has an equal weight rating and a $US$ price target. 182 for shares, in note.

To read: Chip inventories have plummeted as pandemic demand for electronics has slumped, but there are still some winners

Declines in data centers have made Intel Corp. INTC,
-4.35%
this earnings season, and Advanced Micro Devices Inc. OMG,
-3.24%
the results showed some growth concerns (compared to strong results in previous quarters), and Nvidia could break that tie with its data center forecast.

“Now it comes down to how they drive,” Mizuho’s Jordan Klein wrote in a recent note. “The data center is holding on, but fears it will be the next shoe to fall. “

Analysts expect Nvidia’s third-quarter profit of 86 cents per share on revenue of $6.93 billion, with $4.05 billion from data centers and $2.02 billion from games. Reaching these numbers will be important for Nvidia to show that the current issues will be short-term in nature.

“The trajectory for FQ3 is obviously the biggest short-term controversy right now (i.e. whether FQ2 represents the bottom or not),” wrote Stacy Rasgon, an analyst at Bernstein, which has a superior performance rating and a price. -$210 target on Nvidia.

“However, we’re getting the feeling that the buy side would like to see an FQ3 perspective without additional risk, which could make for a solid setup next year, while the cut in games is very similar to the last implosion at the end. from FY19, the upcoming product roadmap looks much more favorable as new products (both gaming and datacenter) are expected to arrive in the next quarter or two as opposed to last time new product cycles were more than 18 months away ,” wrote Rasgon.

Last quarter, Nvidia’s earnings report reflected Cisco Systems Inc.’s CSCO,
-2.03%
where Cisco encountered many of the same supply chain issues it encountered when the Chinese locked down Shanghai in March because of COVID outbreaks. Nvidia can expect this to still be the case, as Cisco expects revenue to grow as supply chain issues subside.

What to expect

Earnings: Of the 27 analysts surveyed by FactSet, Nvidia, on average, is expected to report adjusted earnings of 50 cents per share, down from the $1.04 per share reported a year ago and below the $1.25 per share expected at the start of the year. quarter.

Revenue: Wall Street expects revenue of $6.7 billion from Nvidia, according to 26 analysts polled by FactSet. While it is higher than the $6.51 billion in sales for the year-ago quarter, it is well below the $8.12 billion forecast at the start of the quarter.

Stock movement: During the second quarter, or late July, Nvidia shares fell 2%, while the PHLX Semiconductor Index SOX,
-3.72%
fell 1.6% in this period. Meanwhile, the S&P 500 SPX index,
-2.14%
was stable, while the Nasdaq Composite Index COMP,
-2.55%
dropped 0.5%. On Nov. 29, Nvidia stock closed at an all-time high of $333.76, and has since dropped 49%.

What analysts are saying

Evercore analyst CJ Muse, which has a top performance rating and a price target of $225, said the cut is ongoing and the Nvidia setup is more positive as a result, but that leaves doubts about the trajectory. company’s short-term growth.

“The main areas of focus will be whether or not this cut is GM’s background and trends here,” Muse said.

“So overall, while short-term demand dynamics are likely to remain under pressure, due to a weakened consumer and macro uncertainties flooding corporate spending, we believe the comments will support secular growth drivers intact across all verticals, robust product cycles led by Hopper and Lovelace (and Grace optionality?), and margin expansion moving forward,” said Muse.

Jefferies analyst Mark Lipacis, who has a buy rating and a price target of $370, said he thinks this cut will be easier to buy than the previous one.

Lipacis said the drop in data center sales was driven by the supply chain, and that not only was the total market for data center leases the highest on record, but that vacancies were the lowest on record.

Of the 44 analysts covering Nvidia, 34 have buy ratings, nine have retention ratings and one has a sell rating, with an average target price of $227.12, a 32% premium over the current price, according to FactSet data.

Leave a Reply

Your email address will not be published.