With gaming demand extending its recent slump, and U.S. export rules crimping China sales, investors will be focused on Nvidia’s large data center business to power third quarter earnings and its near-term outlook.
Nvidia Corp. (NVDA) – Get Free Report shares slipped lower Wednesday ahead of the chipmaker’s third quarter earnings after the closing bell, with investors likely focused on whether strength in its data center business can offset ongoing weakness in the gaming industry.
Analysts expect Nvidia to post an adjusted bottom line of 69 per share for the three months ending in October, a 41% slide from the same period last year. Revenues are expected to decline by around 20% to $5.77 billion, thanks in part to weakness in gaming and AI-related chip demand as well as restrictions on high-tech exports into China.
Nvidia itself forecast 2022 revenues of around $5.9 billion, plus or minus 2%, earlier this summer, adding that gross margins would improve notably from the second quarter and come in around 65%, plus or minus 2%.
Those forecasts could improve, however, following news earlier this month that Nvidia had developed a new semiconductor — an advanced A800 graphics processing unit (GPU) — that it can sell to customers in China without violating new U.S. export restrictions. China typically accounts for around 25% of Nvidia’s quarterly revenues.
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The modified chips will replace the more sophisticated A100, which is currently on the list of technologies banned from sale in China by the U.S. government. Nvidia will also delay the launch of its new H100 chip, which was expected later this year, as it transitions some of its operators out of China as a result of the U.S. government order.
A better-than-expected earnings report earlier this month from Advanced Micro Devices (AMD) – Get Free Report, a rival in the data center space, could also suggest firming demand in Nvidia’s largest division, which generated $3.81 billion in sales last quarter.
AMD said on November 2 that it sees quarterly revenue in the region of $5.5 billion, plus or minus $300 million, with gross margins rising to around 51% on sequential growth for its embedded and data center units. Refinitv estimates were looking for a revenue forecast of around $5.85 billion.
For the third quarter, however, data center revenues are expected to rise 29% from last year to $3.79 billion, while sales from its professional visualisation group could fall 38% to $355 million. Automotive chip sales may rise 80% to $243 million.
Gaming, however, is likely to remain weak, with forecasts suggesting a top line decline of around 55%, to $1.4 billion, as Nivida reduces sell-in to customers in an effort to correct a build up in channel inventory while pricing existing products down ahead of the launch of next-generation GPUS in the coming year.
Take-Two Interactive (TTWO) – Get Free Report, the maker of Grand Theft Auto and NBA 2K23, posted weaker-than-expected second quarter earnings earlier this month and issued a downbeat holiday season forecast amid weakness in its mobile segment.
Activision Blizzard (ATVI) – Get Free Report, the Call of Duty maker set to be purchased by Microsoft (MSFT) – Get Free Report later next year, said fourth quarter revenues would likely slip 6% to $2.02 billion, with net bookings rising 11.6% to $2.78 billion.
AMD saw pricing changes mute its gaming sector earnings, as well, with operating income falling 38.5% from last year to $142 million over the September quarter, even as revenues rose 14% to $1.6 billion. CEO Lisa Su said growth would be, “flattish” into the coming fiscal year, but noted there was “still some pent-up demand, especially coming into this holiday season” that could help boost the sector.
Nvidia shares were marked 1.15% lower in pre-market trading to indicate an opening bell price of $164.75 each.
That move that would peg the stock’s year-to-date decline to around 45%, compared to a 28.7% decline for the Philadelphia Semiconductor sub-index and a 27.4% decline for the Nasdaq Composite benchmark.
