NVIDIA Has a Chip On Their Shoulder After Beating Earnings, but Offers Disappointing Guidance
NVIDIA sees strong demand, but faces macroeconomic headwinds.
Tech giant NVIDIA has their fingers on the pulse of many important industries in tech, from gaming and cryptocurrency, to automobiles and data centers, meaning their earnings have a strong implication on stocks in the tech heavy Nasdaq. NVIDIA reported earnings on Wednesday after the bell, so let’s dig into what was said and how they are looking into the future.
The numbers:
Beat EPS, $1.30 expected, $1.36 reported
Beat Revenue, $8.09 billion expected, $8.29 billion reported
Revenue guidance for Q2 2022 is $8.1 billion, with analysts expecting $8.54 billion
Overall expenses increased 35% to $1.6 billion year-over-year
Stock dropped 6% in after-hours trading as investors digested the news
NVIDIA seperates their business into five segments: Gaming, Data Center, Professional Visualization, Automotive, and OEM/Other. Gaming, Data Center, and Professional Visualization all saw year over year increases in revenue, while Automotive and OEM/Other saw declines in revenue. In fact, Gaming saw a 31% increase in revenue and Data Centers saw an 83% increase, each over the past year. These two segments stand out ahead of the rest for NVIDIA.
Colette Kress, CFO of NVIDIA, said: “We delivered a strong quarter driven by record revenue in both Data Center and Gaming with strong fundamentals and execution against a challenging macro backdrop”. NVIDIA is not alone in seeing these “challenging macro backdrops”, as many other companies, such as Target, Walmart, and Snapchat, are seeing economic conditions deteriorate.
Kress also said “However, we started seeing softness in parts of Europe related to the war in the Ukraine and parts of China due to the COVID lockdowns”. This is another common theme in many earnings reports, as the war in Ukraine and China COVID lockdowns are slowing earnings, as well as adding to supply chain pressures that are already present.
One interesting note from the earnings call involves the Omniverse (Metaverse) enterprise software usage. NVIDIA mentions that Kroger is using the Omniverse digital twin software to optimize store efficiency, and PepsiCo is using digital twins to improve the efficieny and environmental sustainability of supply chains. I thought this was a cool use of NVIDIA’s software and it a worthwhile note.
Even with the China, Russia, and macroeconomic headwinds, NVIDIA sees demand staying strong. They are seeing the largest demand in their gaming division, although do expect to see decreases in demand in this area due to less demand for cryptocurrency mining. They also see strong demand in enterprise software as companies build out their hybrid workforce infrastructure. Demand is very strong for their Data Centers as well, as cloud computing is becoming more important in the hybrid work environment.
Late in the conference call, NVIDIA discussed “O-RAN”, their robotics processor designed for car robotics or machine robotics. This chip will allow a sort of “plug-and-play” system for autonomous vehicles and robotic systems. This will allow companies to use NVIDIA’s software and chip processing to power their autonomous cars or warehouses, instead of having to rely on their proprietary software like Tesla does. NVIDIA believes they will continue to see strong growth in this segment as Gaming declines in the short term.
Investors are mixed on their feelings about NVIDIA’s earnings. While down after hours, some investors believe the selloff was an overreaction, and that NVIDIA has strong demand and will continue to perform despite macroeconomic headwinds. Other investors believe NVIDIA is still overvalued, trading at a forward Price-to-Earnings ratio of 28. No matter what you think about NVIDIA, their performance moves markets, especially the Nasdaq, and with how involved they are in many market segments, keeping an eye on them at all times is critical to investing in tech.