Stocks Of Nvidia Plummet After Company Reports Disappointing Revenue

Stocks Of Nvidia Plummet After Company Reports Disappointing Revenue

In the face of challenges in the gaming market, the company preannounces weaker-than-expected revenue

The shares of Nvidia Corp. fell more than 5% in morning trading on Monday after the semiconductor company announced that it expects to fall well short of its revenue expectations for its latest quarter, especially due to weak demand for gaming products.

It is expected that the company will report revenue of $6.7 billion during its fiscal second quarter, up from $6.5 billion a year ago, while analysts were expecting $8.1 billion.

There had been a previous forecast for $8.1 billion from Nvidia’s NVDA, which had also been -7.88%. On Monday, Nvidia made an announcement a few weeks before its scheduled earnings report for August 24.

Stocks Of Nvidia Plummet After Company Reports Disappointing Revenue

As noted in a recent press release, the company noted that the performance was primarily due to lower gaming revenues than expected.

Nvidia expects to report $2.04 billion in gaming revenue for the current quarter, down 44% sequentially and down 33% from a year ago, and below FactSet’s consensus of $3.04 billion for the quarter.

Also, the company expects to post $3.81 billion in data-center revenue, up 1% sequentially and 61% above what the company posted in the same period last year, but slightly below the FactSet consensus of $3.99 billion.

Stocks Of Nvidia Plummet After Company Reports Disappointing Revenue
Stocks Of Nvidia Plummet After Company Reports Disappointing Revenue

As outlined in the release, “The shortfall relative to the May revenue outlook of $8.10 billion was primarily due to lower sales of gaming products resulting from a reduction in channel partner sales likely as a result of macroeconomic headwinds,” corporate executives said in the release.

Furthermore, the company has implemented pricing programs with channel partners in order to reflect challenging market conditions that are expected to persist into the third quarter, in addition to reducing sell-in.

Additionally, the general manager of the company commented that while the data-center total was a record, it fell short of the company’s expectations, as it was affected by disruptions in the supply chain.

Based on the new expectations of demand in the second quarter, Nvidia anticipates that its second-quarter results will reflect $1.32 billion of charges, mainly for inventory and other related reserves.

A release from the company stated that “our gaming product sell-through projections declined significantly as the quarter progressed,” according to Jensen Huang, Chief Executive Officer.

As we anticipate the macroeconomic conditions affecting sell-through to continue, we have taken actions with our gaming partners to adjust channel prices and inventory levels in order to compensate for that.

It provokes questions as to whether or not this announcement indicates a kitchen-sink clearing event or if gaming persists for a longer period of time and the data center will come under pressure in the future.

Jordan Klein, an analyst working for Mizuho’s sales team rather than its research arm, wrote in response to the announcement.

The cut that NVDA stock made a post this magnitude of a guide-down might have been a good vs. bad thing for the stock given it clears the decks on gaming with a massive reset, but NVDA stock had rallied with Tech and Semis in the past few weeks to $190.” he added.

As a result, I think there are more questions than answers regarding the reset for many investors until the company holds its earnings call at the end of August.

Advanced Micro Devices Inc. shares (AMD, -2.93%) are down 1.8% in Monday morning’s trading session.

As part of its overall outlook for the latest quarter, Nvidia anticipates a generally accepted accounting principle (GAAP) gross margin of 43.2% to 44.2%, whereas the company’s prior outlook was for a gross margin of 64.6% to 65.6%. In addition, Nvidia anticipates an adjusted operating margin of 45.6% to 46.6%, whereas its earlier forecast had been for a margin of 66.6% to 67.6%.

As stated in the release, Colette Kress, Chief Financial Officer, believes that Nvidia’s long-term gross margin profile will remain intact.

Her statement stated that Nvidia “slowed operating expense growth, balancing investments for long-term growth with managing near-term profitability,” and informed that the company would continue to repurchase its shares in the future.

During the past 12 months, the stock has lost 11.3% compared to the 6.1% drop in the S&P 500 SPX, 0.32% over the same period.