Shares of Nvidia Corp. were tumbling more than 5% in morning trading Monday after the semiconductor company disclosed that it expects to fall well short of revenue expectations for its latest quarter, largely due to gaming weakness.
The company expects fiscal second-quarter revenue of $6.7 billion, up from $6.5 billion a year before, whereas analysts were expecting $8.1 billion. Nvidia’s
NVDA,
previous forecast had also been for $8.1 billion. The Monday announcement came weeks ahead of Nvidia’s scheduled earnings-report date of Aug. 24.
The company noted in a release that the performance was “primarily reflecting weaker-than-forecasted gaming revenue.”
Nvidia expects to report $2.04 billion in gaming revenue, down 44% sequentially and off 33% from a year before, and below the FactSet consensus of $3.04 billion. The company also anticipates $3.81 billion in data-center revenue, up 1% sequentially and 61% ahead of what the company posted a year earlier, but slightly below the FactSet consensus of $3.99 billion.
“The shortfall relative to the May revenue outlook of $8.10 billion was primarily attributable to lower sell-in of gaming products reflecting a reduction in channel partner sales likely due to macroeconomic headwinds,” executives said in the release. “In addition to reducing sell-in, the company implemented pricing programs with channel partners to reflect challenging market conditions that are expected to persist into the third quarter.”
Executives also noted that while the data-center total marked a record, it came up “somewhat short of the company’s expectations, as it was impacted by supply chain disruptions.”
Nvidia anticipates the second-quarter results to reflect $1.32 billion of charges, largely for inventory and other related reserves given new demand expectations.
“Our gaming product sell-through projections declined significantly as the quarter progressed,” Chief Executive Jensen Huang said in a release. “As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our gaming partners to adjust channel prices and inventory.”
The announcement prompts questions about “whether this signals a kitchen-sink clearing event or if gaming stays worse for longer and data center might come under pressure down the road,” wrote Jordan Klein, a Mizuho desk-based analyst associated with the company’s sales team and not its research arm.
“I would have said this cut [was] more good vs. bad NVDA stock post this magnitude of a guide-down as it clears the decks on gaming with massive reset, but NVDA stock had rallied with Tech and Semis past few weeks to $190,” he added. “Now I see more questions vs. answers on the reset for many investors” until the company holds its earnings call in late August.
Shares of semiconductor peer Advanced Micro Devices Inc.
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are off 1.8% in Monday morning trading.
Nvidia also expects a generally accepted accounting principles (GAAP) gross margin for the latest quarter of 43.2% to 44.2%, whereas the company’s prior outlook was for 64.6% to 65.6%. The company predicts an adjusted operating margin of 45.6% to 46.6%, while its earlier forecast had been for 66.6% to 67.6%.
Chief Financial Officer Colette Kress said in the release that she thinks Nvidia’s “long-term gross margin profile is intact.” She noted that Nvidia “slowed operating expense growth, balancing investments for long-term growth while managing near-term profitability” and disclosed that the company would continue to repurchase shares.
The stock has lost 11.3% over the past 12 months as the S&P 500
SPX,
has lost 6.1%.
