Shares in graphics chip maker NVIDIA Corporation (NVDA) plunged on Monday and continued to fall on Tuesday after the company announced that it expects revenue be significantly lower than its previous estimate, mainly due to lower game sales.
The Santa Clara, Calif.-based chipmaker released preliminary second quarter (Q2) earnings yesterday, posting revenue of $6.7 billion, well below its earlier outlook of $8.1 billion. The revised figures represent top line contracting 19% sequentially from the prior quarter and 3% from the prior year.
Key points to remember
- Nvidia released preliminary second-quarter results that showed revenue of $6.7 billion, well below the chipmaker’s previous forecast of $8.1 billion.
- The company said weaker-than-expected game sales were to blame for the shortfall.
- Nvidia’s data center sales helped offset weakness in gaming, with the segment growing 1% sequentially and 61% from the same quarter a year ago.
- Management believes that long-term margins will remain intact due to slower operating expense growth.
Pressure game segment
Nvidia reported slowing game sales for the second quarter revenue shortfall, with the division coming under additional pressure in the quarter after seeing sales decline 44% sequentially and 33% from the same quarter a year ago. one year old.
“Our projections for gaming product sales declined significantly during the quarter,” said Jensen Huang, Founder and CEO of Nvidia (CEO). “As we expect that macroeconomic conditions affecting continued selling, we have taken action with our gaming partners to adjust pricing and channel inventory, he added.
Huang remained optimistic about the company’s product lineup and expanding markets, noting artificial intelligence (IA) as an exciting opportunity. “NVIDIA has great products and a position in large and growing markets. As we meet these challenges, we remain focused on the unique opportunity to reinvent computing for the age of AI.”
Data center revenues climb despite supply chain disruptions
The company also said that Supply Chain the constraints had crimped its data center segment, which management expects to generate $3.81 billion, slightly below its earlier forecast. However, this still represents growth of 1% sequentially from the prior quarter and 61% on a Year after year (YOY).
Long-term gross margins remain stable
In its preliminary results, Nvidia estimates to have published an adjusted Q2 gross margins of 46.1%, which is significantly lower than its previous guidance of 67.1%. Still, the company said it still expects its long-term gross margin profile to remain intact due to reduced operating expense growth. Nvidia also said it was still able to generate strong cash flow and continue share buyback programs.
“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 expect to continue share buybacks as we anticipate strong cash generation and future growth,” said Nvidia’s chief financial officer (CFO) Colette Kress.
Nvidia shares have rallied strongly over the past month, but are still trading sharply lower so far in 2022. In comparison, the iShares Semiconductor ETF (SOXX) – the chip sector indicator exchange traded fund (ETF) – also gained over the past month, but has fallen less than Nvidia’s year-to-date (YTD). From a valuation perspective, the stock trades around 33x forward profitsslightly below its five-year average multiple of around 40 times.
After their plunge on Monday, Nvidia shares were down 4.3% in late morning Eastern Daylight Time (EDT).
The chipmaker is expected to announce its official second-quarter results after the August 24 closing bell.
Disclosure: The author held no position in the aforementioned titles at the time of publication.