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NVIDIA: 2Q results and weak outlook did not please analysts, but long-term trend remains optimistic

Jamie Cameron
29. 8. 2022
4 min read

Nvidia Corp. on Wednesday provided a third-quarter outlook after the market closed that was much lower than analysts expected. The chipmaker has faced a number of challenges, including declining demand for its gaming and professional visualization products, macroeconomic pressures and supply-chain disruptions.

NVIDIA Corporation

Shares of Nvidia $NVDA+2.6% fell as much as 2% in early Thursday trading, but then turned higher, adding 4%.

Along with the 2Q results, NVIDA also announced a weak outlook

Nvidia reported its Q2 results after the market closed Wednesday. The company missed earnings per share and missed its Q3 forecast due to slowing PC and gaming sales after the sectors saw sharp growth in 2020 and 2021. Here are the most important numbers from the report compared to what analysts were expecting.

  • Revenue: $6.7 billion vs. $6.7 billion expected
  • Adj. EPS: $0.51 vs. $0.53 expected
  • Data Centers: $3 .8 billion vs. $3.8 billion expected
  • Gaming: $2.0 billion vs. $2.0 billion expected

Nvidia also reported third-quarter revenue projections that fell short of expectations, saying it would bring in $5.9 billion in the quarter. Wall Street had expected $6.9 billion.

"We are transitioning our supply chain during a challenging macroeconomic environment, but we will get through it," Nvidia founder and CEO Jensen Huang said in a statement.

https://youtu.be/Jt5oQcQfySY

Nvidia released its preliminary results back on Aug. 8, when it warned investors that it wouldn't meet its own expectations for the quarter as game sales continue to decline.

According to the company's data, game segment sales fell 33% year-over-year and 44% quarter-over-quarter. Other game companies including Microsoft, Sony, Nintendo and others also reported declines in spending on game hardware.

While analysts struggled to get an idea of what the growth rate of gaming will be, Kress, Nvidia's CFO, remained optimistic. "While gaming faces significant short-term macroeconomic challenges, we believe the long-term fundamentals of gaming remain strong," she said.

Quarterly gaming revenue

The last time Nvidia suffered and stockpiled gaming products, during the "crypto winter" of 2019, revenue declined year-on-year for four consecutive quarters. If Nvidia wants to get out of this slump faster and avoid a long-term decline, executives will need more than a quick inventory shift - sustaining the 60% growth in the data center segment, as announced Wednesday, would be a good start. However, it at least appears that executives have learned from their last trip through the semiconductor sales cycle and are hoping for a quicker turnaround this time around.

Nvidia to launch new products soon

Nvidia announced its new chip architecture dubbed Hopper in March, but products with these chips have not yet hit the mass market. Based on previous announcements, it's likely that Nvidia executives will give details on new game cards using Hopper chips at the fall GTC (Global AI Developer Conference) event, which is scheduled for September 19-22.

"We'll get through this in the next few months and go into next year with our new architecture," Nvidia co-founder and CEO Jensen Huang told analysts on a conference call. "I look forward to telling you more about it at GTC next month."

What do analysts think the future holds for Nvidia?

But the questions now turn to the future. Specifically, a key debate on Wall Street concerns whether future expectations are set correctly following a significant management steer.

Nvidia stock forecast and analyst price targets

Sandler Piper has an Overweight rating and $235 price target on NVDA stock.

"We feel the October quarter should mark the bottom for Nvidia in terms of revenue," Piper Sandler analysts wrote in a note to clients. "We truly believe Nvidia's data center business should normalize soon, while gaming growth should start to pick up next year. These trends, along with AI, keep us optimistic about the future," Piper Sandler continued.

Bernstein analyst Stacy Rasgon, who has a buy rating and $210 price target, said investors were expecting the third-quarter forecast to be ugly after the early August warning.

"While the results were a bit breathtaking (and not in a good way), I'm not downright disconnected from the development," Rasgon said. "It's clear that the company is significantly reducing game shipments. Datacenter is holding up well, as is Automotive.

Of the 32 analysts covering Nvidia, 25 have a buy rating, 7 have a hold rating and none have a sell rating, with an average target price of $220.

DISCLAIMER: All information provided here is for informational purposes only and is in no way an investment recommendation. Always do your own analysis.

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