Nvidia Stock Drops as Graphics Chipmaker Warns of Weak Game Sales
Graphics chip manufacturer Nvidia (NVDA) cut its revenue outlook for its second fiscal quarter on Monday morning due to weak gaming chip sales. Nvidia stock fell on the news.
The Santa Clara, Calif.-based company reported preliminary sales of $6.7 billion for its quarter ended July 31. It had previously forecast sales of $8.1 billion for the period. He will announce the official results on August 24.
Gaming revenue was $2.04 billion, down 33% from a year earlier. Data center revenue was $3.81 billion, up 61% from the prior year. Total sales were up 3% from the same quarter last year, Nvidia said in a press release.
The decline in gaming product revenue reflects reduced channel partner sales likely due to macroeconomic headwinds, Nvidia said. In response to the difficult market conditions, Nvidia has implemented price changes with its distribution partners.
Data center revenue, while a record high, fell short of company expectations as it was impacted by supply chain disruptions, Nvidia said.
Nvidia Stock Sinks on News
In afternoon trading today, Nvidia stock fell 8.2% to 174.26.
“Our gaming product sales projections declined significantly during the quarter,” Chief Executive Jensen Huang said in the statement. “As we expect macroeconomic conditions affecting sales to continue, we have taken action with our gaming partners to adjust pricing and channel inventory.”
Second-quarter results will include approximately $1.32 billion of charges, primarily for inventory and related expenses, based on revised forecasts of future demand.
“The significant charges incurred during the quarter reflect previous long-term purchase commitments we made during a period of severe component shortages and our current expectations of continued macroeconomic uncertainty,” Chief Financial Officer Colette Kress said in a statement. a written statement.
Maintenance of gross profit margins
She added, “We believe our long-term gross margin profile is intact. We have slowed operating expense growth, balancing investments for long-term growth while managing near-term profitability. We expect to continue share buybacks as we expect strong cash generation and future growth.”
Nvidia’s sales estimates suggest earnings per share will be 51 cents, versus the consensus target of $1.25 for the fiscal second quarter.
“This was an awful negative preliminary announcement,” BMO Capital Markets analyst Ambrish Srivastava said in a note to clients. “While the shortfall is so severe, it may serve as a ‘compensating’ event for equities given that the shortfall on the gaming side was widely anticipated by investors.”
Srivastava reiterated his outperform rating on Nvidia stock with a price target of 250.
Nvidia Stock Gets Target Price Cuts
At least two Wall Street analysts cut their price targets on Nvidia shares after the company’s announcement. FBN Securities reiterated its outperform rating but lowered its price target to 225 from 250. Rosenblatt Securities maintained its buy rating but lowered its price target to 320 from 400.
Nvidia stock ranks 12th out of 34 stocks in IBD’s fabless semiconductor industry group, according to IBD Stock Checkup. It has an IBD composite rating of 83 out of 99.
IBD’s Composite Rating is a mix of key fundamental and technical measures to help investors assess a security’s strengths. The best growth stocks have a composite rating of 90 or higher.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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