Nvidia Profit Seen Down Amid Crypto Crash, Tech Cuts

Main conclusions

  • Nvidia is expected to announce third-quarter adjusted earnings of 71 cents per share on Nov. 16.
  • Revenue fell 18% year-over-year amid declining demand from cryptocurrency miners.
  • Ethereum’s switch from proof-of-work to proof-of-stake in September reduced demand for mining GPUs or GPUs.
  • Nvidia’s data center sales disappointed in Q2, but remain a key driver of growth for the chip maker.
  • New US export restrictions on sales to China could cost Nvidia $400 million in annual revenue.

Nvidia Corp. (NVDA) reported its quarterly earnings on Nov. 16 after the market closed, with demand for its computing chips hit by an economic slowdown in Europe and China and a slump in cryptocurrencies.

Nvidia’s stock price is down 45% this year (see chart below). Analysts expect third-quarter revenue to fall 18% year over year. Amid rapid adoption of e-commerce and cloud-based applications, strong growth in chip sales for data centers, which are expected to double in two years, has been a saving grace. The segment’s performance will be key to the company’s quarter-to-October results, which are expected to show earnings of 71 cents a share on an adjusted basis, compared with $1.17 in the year-ago period, based on analysts’ consensus estimates.

Another key to the company’s results is the recent drop in demand for Nvidia’s processors in cryptocurrency prices and, more importantly, Ethereum’s switch to “mining,” or computerized blockchain verification, in September. solving mathematical problems. As of May, Ethereum accounted for 97% of mining revenue generated by graphics processing units (GPUs) such as Nvidia, according to one estimate.

Nvidia says it can’t estimate the contribution of cryptocurrency mining to demand for its processors, although the company’s chief financial officer admitted it fell in the quarter ended July 31. In the same conference call, Nvidia’s CEO said that demand for cryptocurrency mining has driven up the price of its products. Robert W. Baird & Co. The analyst estimated that crypto-miners account for 35% of the demand for graphics processing units. In a sign of waning demand for crypto, Nvidia has released an update for one of its GPUs with unlimited hashrate, which it previously used to make its products more attractive to miners.

Nvidia recently released a new graphics processor aimed at Chinese consumers as the company tries to replace $400 million in sales threatened by recent US export restrictions. Analysts are likely to seek more information about the company’s long-term plans in China amid deteriorating US-China relations.

While data center growth has been resilient to economic changes in recent quarters, analysts are looking for any softening after recent cost cuts by some of the largest technology companies that are Nvidia customers. Leading data center operator Amazon Web Services posted its slowest growth in eight years at 27.5% in its latest quarter, and Amazon ( AMZN ) later confirmed it had halted hiring as it plans to lay off about 10,000 workers.

Meta Platforms ( META ), the owner of Facebook and Instagram, recently announced that it will lay off more than 11,000 employees, although its aggressive data center investment plans remain positive for Nvidia.

Source: TradingView.

Source: TradingView

Nvidia’s success story

Although Nvidia released disappointing numbers two weeks ago, the company’s fiscal 2023 results missed analysts’ estimates. Earnings were hurt by a $1.34 billion charge, mainly to discount inventory amid lower demand expectations. Gaming segment revenue fell 44% sequentially in the second quarter, accounting for just over half of data center sales.

In the report, Nvidia forecast third-quarter earnings of $5.9 billion, or 2%, with gaming revenue expected to decline further along with cryptocurrency, while data center revenue rose sequentially from the second quarter. The stock recovered its after-hours decline and rose 4% the next day, but it has lost more since then.

The company’s fiscal 1st 2023 results, announced in May, beat estimates. The next day, the share price rose by 5.2%.

Nvidia key stats

assessment for
3rd quarter of 2023
3rd quarter of 2022 Q3 FY2021
Adjusted profit
Per Share ($)
0.71 1.17 0.73
Revenue ($B) 5.8 7.1 4.7
Data Center Revenue ($B) 3.8 2.9 1.9

Sources: Visible Alpha, Nvidia and news reports

Key indicator

Nvidia’s Data Center segment includes sales of data center platforms and processors for artificial intelligence (AI), high-performance computing, and accelerated computing systems. As such, it mainly counts on enterprise customers, while the end markets for its gaming processors are heavily dependent on gamers and other retail buyers.

Processors for data centers are designed to accelerate computing for the most intensive workloads, including AI, data analytics, graphics and scientific computing in hyperscale, cloud, enterprise, public sector and edge data centers. Products include energy-efficient GPUs, data processing units (DPUs), interconnects and systems, and the CUDA programming model, along with software libraries and development kits.


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