NVIDIA Corporation (NASDAQ:NVDA) is set to report fourth-quarter results, after market close on Feb 14. Over the past few years, nothing looked wrong for the graphics chip leader. But, things began to change drastically last October.
An array of headwinds put a brutal end to its impressive growth streak. The company had to deal with excess gaming GPU inventory, decline in sales of the latest graphics cards, slowdown in data center, and weak demand from China. Take a look —
NVIDIA’s gaming growth took a beating due to the fallout from the cryptocurrency bust. The market for graphics cards, by the way, is now normalizing and it’s difficult to tell what NVIDIA’s gaming growth will be once that normalizing process is complete.
It is widely expected that NVIDIA’s RTX 20 series won’t be as popular as its GTX 10 series, which was exclusively responsible for driving the company’s commendable growth since 2016. The RTX 20 graphics cards offer smaller performance increases than the GTX 10 series, thus hurting its value among gamers.
Graphics cards maybe popular for artificial intelligence workload, but we shouldn’t forget that multiple cloud infrastructure providers are already using custom artificial intelligence (AI) chips that are way more efficient than GPUs.
Some may argue that NVIDIA’s data center business still has long-term growth potential. But, let’s admit it’s impossible to continue the current growth level of 50% indefinitely, especially, when there is a slowdown in data center demand.
And how can we forget that resurgent Advanced Micro Devices, Inc. (NASDAQ:AMD) poses a threat to NVIDIA. Rival AMD’s latest results show that the company can easily recover from the weakness in the broader market this year and end up recording high single-digit revenue growth.
NVIDIA Slashes Guidance
As the aforesaid problems pile up, the graphics chip specialist recently issued a discouraging guidance. The company sees fourth-quarter revenues of a meager $2.2 billion, $500 million below its previous guidance and reflects 24% decline on a year-over-year basis.
Such a dismal guidance overshadowed NVIDIA’s double-digit growth in the third quarter, driven mostly by its segments except for OEM and IP.
(Data Source: NVIDIA)
Weak Performance Expected
Analysts widely see revenues slipping to $2.3 billion in the fourth quarter from $2.9 billion a year earlier.
The Zacks Rank #5 (Strong Sell) company’s earnings per share are expected to fall to 53 cents from $1.57 a year ago.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
If this wasn’t enough, eight earnings estimates moved south in the past 60 days, while one moved north for the current year. The Zacks Consensus Estimate for earnings declined almost 9% in the same period.
Downbeat earnings performance, no doubt, will lead to a drop in the share price. The company’s earnings growth rate is expected to decline 56.4% in the current quarter, while the Semiconductor - General industry is poised to gain a whopping 475.8%. At the same time, the company has underperformed the broader industry over the past three months (-24.5% vs -2.7%).
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Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
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