Earnings Outlook: Nvidia earnings: One more shoe to drop for beleaguered chip maker

This post was originally published on this site

Nvidia Corp. has one more shoe to drop following a quarter where the chip maker cut its outlook twice.

Nvidia NVDA, +0.51%  is scheduled to report fourth-quarter earnings after the market closes on Thursday. The Santa Clara, Calif.-based chip maker recently cut its outlook for the second time in three months, citing weakness in China and slow gaming chip and data-center sales. Back in November, Nvidia cut its outlook for the fourth quarter during its previous earnings report, citing excess inventory of its midrange Pascal-architecture gaming chipsets, the older generation to the company’s recently released Turing-architecture line of chips.

“Looking forward, we are confident in our strategies and growth drivers,” Nvidia Chief Executive Jensen Huang said in a statement following the last outlook cut.

Read: Nvidia is latest sign that the cloud boom is dying

Now, it is time for Huang and Nvidia to look forward on the record, with a 2019 forecast that will prove their fourth-quarter issues were temporary, or the unfortunate opposite. Oversupply and inventory issues along with trade war concerns with China have battered the outlooks of many chip makers even as the industry in 2018 topped annual global sales of one trillion chips for the first time.

The largest chip makers, including Intel Corp. INTC, -0.79% Taiwan Semiconductor Manufacturing Co. TSM, -0.87% and Texas Instruments Inc. TXN, +0.66%  , have predicted a cautious start to 2019, while Qualcomm Inc.’s QCOM, -0.51%  forecast outlook range bookended Wall Street estimates and Advanced Micro Devices Inc. AMD, +1.68%  proved to be an outlier, offering the most bullish 2019 outlook so far. Analysts on average expect Nvidia to collect $11.41 billion in revenue in the just-begun fiscal year, according to FactSet.

Read: AMD’s Lisa Su takes center stage at CES, taking aim at Intel and Nvidia

Nvidia investors expect a weak report on Valentines Day after multiple warnings about the fourth quarter. The question is if they will want to break up after seeing what’s to come.

What to expect

Earnings: Of the 28 analysts surveyed by FactSet, Nvidia on average is expected to post adjusted earnings of 70 cents a share, compared with $1.57 a share reported in the year-ago quarter. The current estimate is down from $1.85 a share expected at the beginning of the quarter. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $1.19 a share.

Revenue: Wall Street expects revenue of $2.29 billion from Nvidia, according to 29 analysts polled by FactSet. That’s down from $3.42 billion Wall Street had forecast at the beginning of the quarter. In the year-ago period, Nvidia reported revenue of $2.91 billion. Nvidia now predicts revenue of $2.16 billion to $2.24 billion. Estimize expects revenue of $2.5 billion.

Nvidia’s revenue is broken down into five segments: Gaming, data center, professional visualization, automotive and “OEM & IP,” or original equipment manufacturers and intellectual property. Analysts on average expect third-quarter gaming revenue to drop 41% to $1.02 billion from the year-ago quarter, data-center sales to rise 14% to $692.2 million, professional visualization sales to rise 20% to $303.9 million, auto sales to rise 33% to $175.4 million and OEM & IP revenue to decline 26% to $134.1 million.

Should Nvidia’s sales meet current Wall Street expectations, the chip maker’s calendar 2018 revenue is looking at a 23% gain to $11.65 billion.

Stock movement: Nvidia shares are down 27% since the company’s last earnings report, while the S&P 500 index SPX, +0.07% is down 1.1%, the tech-heavy Nasdaq Composite Index COMP, +0.14%   is up 0.3%, and the PHLX Semiconductor Index SOX, -0.11%   is up 5.5%. For the year, Nvidia is up 11%, the S&P 500 is up 7.7%, the Nasdaq is up 9.8%, and the SOX index is up 13%.

What analysts are saying

Nvidia’s stock took some heat from the analyst community following the last outlook cut. In his double downgrade of Nvidia to an underperform from a buy, Needham analyst Rajvindra Gill said the continuing deceleration of the Chinese economy will curb end demand for the company’s core products in gaming and data center.

“While Nvidia does not break out its specific Chinese gaming exposure, desktop gaming is hugely popular in China and a big market for Nvidia,” Gill said. “Deteriorating conditions in the Chinese economy have adversely affected purchases of graphics cards, particularly high-end RTX GPUs.”

On the data-center side, while a slowdown in purchases from U.S. companies like Amazon.com Inc. AMZN, -1.62% Microsoft Corp. MSFT, +0.38%  and Alphabet Inc. GOOG, -0.33% GOOGL, -0.32%  is driven mostly by digesting overbought inventory, it’s a different story for Chinese cloud companies like Alibaba BABA, +0.24% Baidu BIDU, -0.98%  and Tencent 0700, -0.58% Gill said.

“The deceleration in the Chinese economy has hurt hyperscaler infrastructure spending and in turn GPU purchases,” Gill said. “We will have to monitor if we see a return to normalized cloud purchases by the Chinese and U.S. hyperscalers.”

In the minority optimist corner, UBS analyst Timothy Arcuri used the occasion of Nvidia’s reduced outlook to upgrade the stock to a buy and increase his price target to $190 from $180 because the company had reset its revenue enough “that we have catalyst path.”

“We don’t yet know revenue splits, but in gaming we feel confident that it is now materially under-shipping demand,” Arcuri said. “In data center, low accelerator penetration did not insulate against capex deceleration as expected, but it is very hard to believe this is anything but timing.”

Of the 36 analysts who cover the stock, 24 have buy or overweight ratings, 10 have hold ratings and two have sell or underweight ratings, with an average price target of $179.00, down from an average $225.83 at the beginning of the year.

Get the top tech stories of the day delivered to your inbox. Subscribe to MarketWatch's free Tech Daily newsletter. Sign up here.

Be Sociable, Share!

Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.