Nvidia Only a Bit Off Its Game

Nvidia CEO Jensen Huang, pictured in 2018.


ritchie b. tongo / epa-efe / rex / shu / EPA / Shutterstock

Nvidia NVDA 5.16%

maybe the company that makes the chips for the metaverse, but even they can’t escape the real world sometimes.

The financial results for Nvidia’s first fiscal quarter ended May 1 exceeded expectations, at least in its core video games and data center business segments. Revenue rose 46 percent year-over-year to about $8.3 billion, and adjusted operating profit spiked even further, 55 percent to a record high of nearly $4 billion.

But Nvidia’s revenue forecast for the current quarter is about 4% below Wall Street’s target – a notable omission for a company that has forecast on consensus for the past nine quarters with an average of 10% each time, according to FactSet data.

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

But the upbeat view also confirms many concerns that Nvidia’s booming video game business is finally slowing down. That unit accounts for nearly half of Nvidia’s total business, and has averaged 54% year-over-year growth over the past eight quarters. But many of the pressures of supply chain challenges and inflation could begin to take their toll. Nvidia predicts that its game revenue will decline continuously in the current quarter, which will be the first decline in eight periods.

Even so, Nvidia’s data center business turned out to be a huge savings opportunity. Revenue there grew 83% year-over-year to nearly $3.8 billion in the latest quarter, and Nvidia forecasts “strong sequential growth” for the current period. Data center revenue actually outstripped the game in recent quarters, another trend that is expected to continue on the back of exploding cloud demand and the efforts of companies like Facebook-Background parent Meta platform to build their metaverse ambitions.

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

All of that went into Nvidia stock, which hit more than 60 times earnings at the end of last year. But the market’s brutal technology correction has cut that figure in half, and Nvidia’s premium on the PHLX Semiconductor Index is now far below the peer-to-peer average over the past four years. .

Nvidia’s share price jumped nearly 4% on Thursday following the latest results – showing that investors understand that the chipmaker still has a lot of play.

Write letter for Dan Gallagher at dan.gallagher@wsj.com

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Appeared on May 27, 2022, print edition as ‘Nvidia Is Only a Bit Off Its Game.’

https://www.wsj.com/articles/nvidia-only-a-bit-off-its-game-11653581043?mod=rss_markets_main Nvidia Only a Bit Off Its Game

Edmund DeMarche

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