As NVIDIA Corporation (NASDAQ:NVDA) publishes second-quarter earnings after Wednesday’s closing bell, there will be lots of moving parts for investors and analysts to keep track of.
The chipmaker has already warned that quarterly revenue will fall US$1.4bn short of the US$8.1bn guided, as sales of gaming chips weakened.
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Profit margins are expected to be softer too, hit by a running down of excess inventory, while cost control will also be one of the key issues Wall Street will be watching.
As it warned of “ongoing macroeconomic uncertainty” last time, this is projected to play out with lower spending on hardware, hitting demand for chips.
Rivals such as Micron (NASDAQ:MU) and Intel (NASDAQ:INTC) have made warnings in recent weeks as the industry faces up to the slowdown.
Although Nvidia’s share price has sunk 40% since the start of the year, which also saw it pretty much forced to withdraw from its agreed takeover of ARM, it has rebounded over 20% since the start of July.
“Analysts expect the current slowdown will be a blip with sales accelerating as inflationary pressure abates and demand for electric vehicles and AI ramps up,” noted AJ Bell investment director Russ Mould, noting that careful attention needs to be paid to any changes in planned capital expenditure as competitors have said they’re cutting back despite new US legislation aimed at boosting US chip production.
The analysts also pondered is the company making “enough of the right kinds of chips” as while there is a glut of memory chips, graphic cards and PC processors, automotive and industrial markets are still bemoaning shortages.
Analysts at Hargeaves Lansdown also noted that good news for Nvidia backers should be continued share buybacks, as it looks set to continue delivering strong cash generation.
"However, with competitors reporting falls in gaming and PC demand, any indication on consumer demand going forward will be welcomed.”
Nvidia was recently purchased as "modern picks and shovel play" by the T Rowe Price US Large Cap Value Equity Fund, where portfolio manager Gabe Solomon said the company should enjoy "several tailwinds for the foreseeable future".
"After the stock sold off more than 50% from its highs – and the valuation came down from a peak of 56x EBITDA to about 24x – we saw an opportunity to start buying into a company we believe can still achieve annualised growth of 20% or more over the long term."