NVIDIA refocuses on its game chips
Ken Odeluga November 14, 2019 5:08 PM
The group aims to shake off Bitcoin-like volatility with rising gaming GPU sales
NVIDIA is perhaps the best-known technology company whose fate appears to be linked to the rise and fall of Bitcoin. The cryptocurrency is down more than 50% from euphoric December 2017 highs, even after rising sharply from late-2018 lows. In turn, NVIDIA shares remain some 30% lower from their October 2018 record high despite a 26% advance off lows in August.
To an extent, NVIDIA’s slump roughly in unison with Bitcoin and other cryptocurrencies makes a clear point about how much the $55bn maker of specialist chips relies on supplying processing power to coin miners. Demand in that sphere is met by the group’s OEM & IP segment. OEM & IP contributed a modest 6.5% of revenues in NVIDIA’s previous financial year. As such, with revenues down for three straight quarters, albeit exacerbated by imprudently hiked inventories, increasingly aggressive competition in other markets was more to blame. Chiefly, NVIDIA remains a leading provider of the sophisticated chips used for artificial intelligence systems that increasingly operate the world’s data centres. Yet its market share has come under increasing pressure over the last year or so. Advanced Micro Devices and Intel have been deepening inroads into NVIDIA’s server room market as well as its better-known gaming chips business. There will be a stronger focus on NVIDIA's performance in those arenas, when it reports earnings on Thursday night, than on crypto-related sales.
At the same time, the gaming chips business showed sequential growth in Q2 that could soon begin to offset tepid server rooms. The improvement puts guidance in sharp focus: Wall Street expects NVIDIA to back estimates for Q4 sales pointing to about $3.1bn, up almost 40% on the year.
Tariff and trade impacts will also be a concern, whilst a planned acquisition, a chip architecture upgrade and responses to rival AMD processors will all be of interest in the post-earnings conference calls, as well as material distractions for the group in the months ahead. However, with the shares still trading on a higher rating than rivals - almost 31 times estimated current year earnings compared to 22 times for peers - earnings and sales performance still holds key as to whether the stock extends a 55% advance so far this year or curtails it.
- Adjusted Q3 EPS forecast: $1.23, down 14%
- Q3 revenue: £2.91bn, -8.5%
- Q3 operating profit: 1.053bn, -0.5%
- Q4 revenue guidance: $3.067bn, +39%
Consensus source: Bloomberg
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.