Nvidia Only a Bit Off Its Game

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Disappointing forecast broke a streak, but the stock is now too cheap

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But Nvidia’s revenue forecast for the current quarter was about 4% below Wall Street’s target — a notable omission for a company that has averaged 10% each time for the past nine quarters, above the consensus consensus, according to FactSet data. has estimated.

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The disappointing forecast stemmed from lost sales in Russia and an estimated $500 million hit by the Covid-19 lockdown in China. The latter is a particularly important market for Nvidia’s gaming chip business. And as CEO Jensen Huang said in an interview, “When big cities are closed, no one can buy our products.”

But the downbeat view also confirmed many fears that Nvidia’s booming videogame business is finally slowing down. That unit comprises about half of Nvidia’s total business, and has grown an average of 54% year-over-year over the past eight quarters. But supply-chain challenges and several inflationary pressures have begun to show their effects. Nvidia forecast that its games revenue would decline sequentially in the current quarter, the first such decline in eight periods.

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Nvidia’s data center business has become a major saving grace, however. Revenue in the latest quarter rose 83% year over year to nearly $3.8 billion, and Nvidia forecast “strong sequential growth” for the current period. Data center revenue actually outpaced games in the recent quarter, another trend expected to continue thanks to rising demand for cloud computing and efforts by companies like Facebook-parent meta platform to fuel their Metaverse ambitions .

Wall Street expects Nvidia’s data center revenue to grow 55% to $16.5 billion in the current fiscal year and comprise more than half of the company’s total revenue in the coming fiscal years.

It was all nicely baked into Nvidia’s stock when it posted more than 60 times forward earnings at the end of last year. But the market’s brutal technological recovery has cut many in half, and Nvidia’s premium in the PHLX Semiconductor Index is now well below the peer group average over the past four years.

Nvidia’s share price rose nearly 4% on Thursday after the latest results — indicating investors understand the chipmaker still has a lot to play.

Write Dan Gallagher at [email protected]

Credit: www.Businesshala.com /

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