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Bear of the Day: Nvidia (NVDA)

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Nvidia (NVDA - Free Report) is a chip superstar that’s expanded its reach far beyond the gaming industry into data centers and beyond.

The GPU maker has, however, come under pressure due to slowing demand as consumers shift their spending habits. Nvidia on August 8 provided downbeat preliminary second quarter FY23 guidance that forced analysts to trim their earnings outlooks. And the stock is still down over 35% in 2022.

Nvidia Basics

Nvidia transformed into a Wall Street favorite in the chip space on the back of its ability to supply the growing gaming industry with great processors.

Yet it was NVDA’s expansion into and success within the booming world of data centers and cloud computing that establish Nvidia as a global technology titan and the largest U.S. chipmaker by market cap.

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Image Source: Zacks Investment Research

Despite its ability to grow over the long-haul within crucial tech industries, Nvidia is still exposed to the broader cyclical nature of the semiconductor market. Nvidia on August 8 offered up preliminary second quarter revenue guidance of $6.70 billion vs. its initial outlook of $8.10 billion, driven by a big slowdown in gaming.

Nvidia said that the shortfall relative to the May revenue outlook is “primarily attributable to lower sell-in of Gaming products reflecting a reduction in channel partner sales likely due to macroeconomic headwinds.” Nvidia said its overall Q2 revenue is still projected to climb 3% YoY, with data centers sales up 61% and gaming down 33%.

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Image Source: Zacks Investment Research

Bottom Line

The lowered gaming guidance was accompanied by slightly-lower-than-projected data center revenue. The new outlook is set to eat into its margins and bottom line. Nvidia’s updated earnings estimates help it land a Zacks Rank #5 (Strong Sell) at the moment, alongside its “F” grades for Value and Momentum in our Style Score system.

Nvidia’s Semiconductor – General industry is currently in the bottom third of over 250 Zacks industries. NVDA stock is down around 36% in 2022 and it’s still trading at 48.8X forward 12-month earnings vs. its industry’s 25.1X average.

NVDA is, of course, one of the largest tech stocks on the planet and it’s poised to thrive over the long-haul. But it might be prudent for investors to shy away from Nvidia for the moment until it provides updated full-year guidance when it officially reports on August 24.


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