Nvidia’s (NVDA) Bleak Outlook Prompts Sharp Stock Reversal

The company beat 2Q/19 expectations across the board Thursday, but shares dipped after the graphics-maker said crypto-fueled demand had dried up

Nvidia Stock - NVDA

Nvidia‘s (NASDAQ:NVDA) stock price tumbled 6 percent in extended trading Thursday after the graphics-chip maker reported strong second-quarter 2019 results and guidance excluding crypto.

The Santa Clara, Calif.-based company reported earnings per share (EPS) of $1.76 on revenue of $3.12 billion, a jump of 91% and 40%, respectively, from the same quarter a year earlier. Analysts on average projected EPS of $1.64 on revenue of $3.11 billion. Non-GAAP earnings per diluted share were $1.94, up 92% from a year ago.

“Growth across every platform — AI, Gaming, Professional Visualization, self-driving cars — drove another great quarter,” CEO Jensen Huang said in a statement. “Fueling our growth is the widening gap between demand for computing across every industry and the limits reached by traditional computing. Developers are jumping on the GPU-accelerated computing model that we pioneered for the boost they need.”

For the current quarter, Nvidia, which recently announced its next generation of graphics cards-Turing, expects sales to rise 23% year-over-year (y/y) to $3.25 billion, 2.7% below a $3.34 billion consensus estimate. The chipmaker did not give an EPS target.

The softness in the company’s guidance is related to the exclusion of cryptocurrency GPU sales which get generated from cryptocurrency miners using graphics cards based on Nvidia’s chips to mine new coins. While Gaming and Datacenter revenues rose 5% and 8% sequentially, crypto-related sales came in much lower.

“Our revenue outlook had anticipated cryptocurrency‐specific products declining to approximately $100 million, while actual crypto‐specific product revenue was $18 million,” Nvidia CFO Colette Kress said in a written statement. “Whereas we had previously anticipated cryptocurrency to be meaningful for the year, we are now projecting no contributions going forward.”

Despite the outlook, analysts expect Nvidia’s stock to resume its rise.

In a note to clients Friday, Wells Fargo’s Aaron Rakers, who earlier this week more than doubled his NVDA price target (PT) from $140 to $315, reiterated his ‘Outperform’ rating and PT on the name, saying that despite the graphics-chip maker’s “modestly tempered” Q3 outlook, “investors focus should be on the 2019 product cycle and long-term addressable market expansion story.”

In similar fashion, Needham’s Rajvindra Gill tells investors that based on the fact that “every other segment rose sequentially and from last year to record levels [Data center sales, Nvidia’s second-largest segment, increased 83% y/y to $760 million. Gaming sales rose 52% to $1.8 billion, while Vizualization and Auto-related revenue increased by 20% and 13%, respectively]….the focus on crypto is actually a “side show” for Nividia.”

Gill kept his ‘Buy’ rating and $325 price target on the stock.

Bank of America (NYSE:BAC) also expressed confidence in the company, saying they believe in the chıpmaker’s product pipeline, specifically referring to NVDA’s next-gen Turing architecture, which was announced Monday at a conference in Vancouver, BC. They reiterated their ‘Buy’ rating and reaffirmed the name’s $340 price target.

Price Action

Nvidia shares ended Friday’s regular session down 4.90%, at $244.82. The ticker is up 26% year-to-date and 53% year-over-year.

Reference: Thefly

About Ron Haruni 1038 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

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