- Q2 gaming revenue slumps 44% on Q1, 33% year-on-year
- Growth alerts have been coming thick and fast in recent weeks
- Stock falls 6%-plus, now down more than 40% in 2022
The world’s biggest chip designer Nvidia (NVDA:NASDAQ) warned overnight that it would miss expectations by a wide margin when it reports second quarter earnings later this month (24 Aug).
The Silicon Valley company said it likely generated $6.7 billion in revenue during its recently concluded second quarter, up 3% over year-ago levels but lagging its original guidance of between $7.94 billion and $8.26 billion.
Analysts polled by Capital IQ had been expecting an average of $8.1 billion in revenue from Nvidia during the three months ended 31 July.
The primary driver of the shortfall was weakness in the gaming segment, which was down 44% sequentially and 33% year over year to $2 billion.
ALARM BELLS RINGING LOUDLY
The news seems to have caught investors on the hop, yet there have been lots of red flags recently.
Graphics processing unit peer Advanced Micro Devices (AMD:NASDAQ) recently reported weaker PC GPU sales and provided a softer outlook for its GPU business.
There have also been numerous reports in recent months detailing excess GPU inventories as supply overshot a rapidly declining demand environment.
Nvidia’s warning also comes after Xbox-maker Microsoft (MSFT:NASDAQ) recently reported a slump in gaming revenue, while PlayStation maker Sony (6758:TYO) trimmed its forecast due to waning consumer interest as a lack of new games and easing of Covid-19 constraints hit gaming demand.
‘Clearly, Nvidia’s gaming business received a strong boost to growth during the pandemic, and as the world has become much more normalised in 2022 gaming demand has declined substantially,’ said FBN Securities analyst Shebly Seyrafi.
Seyrafi described Nvidia’s warning as a ‘large reset’ that may be what ‘many investors were waiting for before buying.’
MORE ‘CHALLENGING’ QUARTERS TO COME
‘We think Nvidia could be due for a few challenging quarters, which could create a more attractive entry point,’ believes Morningstar strategist Abhinav Davuluri. Yet he remains optimistic on the company’s longer-run prospects for growth as new rapid growth markets are tapped.
‘We think long-term investors could find shares of wide-moat Nvidia beginning to look attractive, as we expect the firm’s data centre business will prove more resilient to macroeconomic headwinds,’ said Davuluri.
‘Artificial intelligence and other cloud investments are poised to remain elevated, and we believe Nvidia still boasts strong exposure to these secular trends among chipmakers,’ he added.
Shares in the $440 billion company fell sharply, losing more than 6% to $177.93, with further declines seen when Wall Street reopens later today. Nvidia stock is down more than 40% so far this year.
