NVIDIA Corporation’s quarter three earnings were released on November 16. The company’s revenue declined by 17% from a year ago; however, sales surpassed analysts’ expectations.
NVIDIA is a leading technology company known for developing visual computing technologies and integrated circuits. It is also the most prominent manufacturer of highly efficient graphic processing units (or GPUs).
The well-known economic survey organization Refinitiv previously estimated EPS (earnings per share) at $0.69 and revenue at $5.77 billion for NVIDIA. However, the actual numbers beat revenue estimates at $5.93 billion. On the other hand, EPS from non-GAAP (generally accepted accounting principles) came out lower at $0.58, almost 50% down from a year ago and 14% up from the previous quarter. GAAP earnings per diluted share also declined by 72% y-o-y but showed a 4% increase sequentially.
Moreover, NVIDIA reported a return of $3.75 billion to shareholders in share repurchases and dividends, pushing the combined return in the three quarters of fiscal 2023 to $9.29 billion. The company is set to pay its next quarterly dividend of $0.04 per share on December 22, 2022.
Having said that, NVIDIA’s financial results for the second quarter, released in August, were well below Wall Street expectations with a revenue of $6.70 billion versus an outlook of $8.10 billion. The corporation revealed that the miss was because of declining sales of its gaming products, including graphics cards for PCs, which are suffering from challenging market conditions.
Many expected the company’s third-quarter results to be affected by the waning demand for chips used in the gaming market.
After the pandemic-linked inflated demand of the past few years, the PC gaming market has been significantly slowing down over the course of this year. NVIDIA graphic cards, which were in very high demand during 2020-2021, are now being sold at discounted prices.
However, the gaming division’s revenue grew by $1.57 billion this quarter, beating the Zacks Consensus of $1.4 billion, but still 51% down from the previous year and 23% down from the 2022 fiscal second quarter.
NVIDIA’s other small business segment, known as Professional Visualization, contracted by 65% on an annual basis and 60% on a quarterly basis to $200 million. Even though the department’s revenue declined this quarter, it introduced NVIDIA Omniverse Cloud, an innovative software and infrastructure, as a service solution during this period. Omniverse Cloud extends cloud services to artists, developers, and business teams, to help them approach metaverse applications.
Overall, the chipmaker’s negative performance in these two segments might have been influenced the most by disrupted retail sales in the face of travel bans, geopolitical tensions, and social distancing measures, enacted across several parts of China. During such erratic conditions, many investors tend to turn towards CFD-trading platforms where they can take advantage of both market directions. easymarkets.com is one such broker offering stock CFDs, including NVDA, to help traders stay on top of the markets.
NVIDIA’s soaring Data Center products were in the spotlight this quarter, thanks to the increased demand for cloud-based solutions amid the budding hybrid-working trend. Revenue estimates for the Data Center division stood at $3.91 billion but the revenue came out slightly lower at $3.83 billion. However, it still exhibited an increase of 31% from a year ago and 1% from the previous quarter. As mentioned before, the rising Data Center sales are attributed to the increasing demand from U.S. cloud service providers and consumer internet companies. The report mentioned that NVIDIA powers around 90% of the world’s fastest new supercomputer systems in the TOP500 list – such as H100-powered systems.
During the third quarter, the company’s Data Center segment announced two large language model cloud AI services. These are set to support the developers in efficiently adapting LLMs and deploying customized AI applications for content generation, summarization, and biomolecular property predictions. The department also introduced the second generation of NVIDIA OVX™ along with enhanced networking technology to enable the creation of 3D worlds with live ground-breaking graphics, AI, and simulation properties. Further, the corporation announced multi-year partnerships with Microsoft, Oracle, and Nuance Communications during this quarter.
Another segment of NVIDIA, Automotive, reported $251 million in revenue, depicting an 86% increase y-o-y and a 14% improvement since the last quarter.
The segment marked two important developments this time: the launch of the all-electric Volvo EX90 SUV and Polestar SUV, and NVIDIA DRIVE Thor, a next-gen centralized computer for safe and secure autonomous vehicles. Another notable announcement was the integration of NVIDIA Drive Orin in Hozon Neta future electric vehicles.
Furthermore, the company’s “Other” category, which mainly covers NVIDIA’s cryptocurrency mining chips, registered $73 million in revenue. The sales were nominal under the backdrop of the Ethereum transition, which has pushed down the utility of GPUs for crypto mining rigs.
Like most tech companies, NVIDIA’s share price is under massive turbulence this year where it has lost about 48% in value YTD. However, analysts believe that the stock is at the bottom, signaling potential buying opportunities. Also, the stock rose by 2% after the release of the earnings report. But note that investors may become unwilling to pay a premium for NVDA if it shows consequent bottom-line misses.
Currently, while NVDA trades at an impressive 64.8x earnings, it is still well below its decade-high of 93.5X. Nevertheless, it is above the middle level of 37.1X.
On a positive note, Summit Insights upgraded NVDA to a Buy from Hold after the release of Q3 results. An analyst from JP Morgan also perceived that near-term opposing forces pressing on NVIDIA’s business are starting to fade. He predicted that the chip maker is set to experience accelerated growth next year, suggesting a price target of $220.
NVIDIA’s third-quarter results were not very surprising, considering the macroeconomic conditions over the last year. The semiconductor market is one of the most greatly affected sectors under this economic turmoil and NVIDIA is undoubtedly a victim of it.
Investors are keeping a close eye on NVIDIA’s future growth amidst the current economic conditions. Quarter four results are due at the beginning of 2023 and the expectations for revenue are set at $6 billion, plus or minus 2%, manifesting a decline of 21% y-o-y. GAAP gross margins and operating expenses are expected to be 63.2% and $2.56 billion, respectively. Further, GAAP “other income and expenses” are slated at approximately $40 million, whereas tax rates can reach up to 9%.Nonetheless, the economic challenges are arguably not permanent as the chip maker could soon bounce back. According to Jensen Huang, CEO of NVIDIA, they are quickly adapting to the macro environment, correcting inventory levels, and paving the way for new products. All in all, NVIDIA has a substantial long-term growth capability as it specializes in cloud computing, AI, and GPUs, and is establishing services in emerging domains like the Metaverse, which may be the core of future developments.