Graphics-chip maker Nvidia (NVDA) early Monday slashed its revenue outlook for its fiscal second quarter on weak gaming-chip sales. Nvidia stock tumbled on the news.
The Santa Clara, Calif.-based company announced preliminary sales of $6.7 billion for its quarter ended July 31. It previously had forecast sales of $8.1 billion for the period. It will announce official results on Aug. 24.
Gaming revenue was $2.04 billion, down 33% from the prior year. Data center revenue was $3.81 billion, up 61% from the prior year. Total sales rose 3% from the same quarter last year, Nvidia said in a press release.
The lower gaming products revenue reflected a reduction in channel partner sales likely due to macroeconomic headwinds, Nvidia said. In response to the challenging market conditions, Nvidia has implemented pricing changes with its sales channel partners.
Data center revenue, though a record, was short of the company’s expectations, as it was impacted by supply chain disruptions, Nvidia said.
Nvidia Stock Sinks On News
In afternoon trading on the stock market today, Nvidia stock fell 8.2% to 174.26.
“Our gaming product sell-through projections declined significantly as the quarter progressed,” Chief Executive Jensen Huang said in the 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.”
Second-quarter results will include about $1.32 billion of charges, primarily for inventory and related expenses, based on revised expectations of future demand.
“The significant charges incurred in the quarter reflect previous long-term purchase commitments we made during a time of severe component shortages and our current expectation of ongoing macroeconomic uncertainty,” Chief Financial Officer Colette Kress said in a written statement.
Maintaining 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 plan to continue stock buybacks as we foresee strong cash generation and future growth.”
Nvidia’s sales estimates suggest earnings per share will be 51 cents, vs. the consensus target of $1.25 for the fiscal second quarter.
“This was an ugly negative preliminary announcement,” BMO Capital Markets analyst Ambrish Srivastava said in a note to clients. “While as bad as the shortfall is, this may serve as a ‘clearing’ event for shares given the miss 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 Price-Target Cuts
At least two Wall Street analysts cut their price targets on Nvidia stock after the company’s announcement. FBN Securities reiterated its outperform rating but trimmed 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 No. 12 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 blend of key fundamental and technical metrics to help investors gauge a stock’s strengths. The best growth stocks have a Composite Rating of 90 or better.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
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