Nvidia's profits seen slipping amid crypto crash, tech cuts

Nvidia’s profits seen slipping amid crypto crash, tech cuts

Key points to remember

  • Nvidia is expected to post third-quarter adjusted earnings of 71 cents per share late Nov. 16.
  • Revenue is expected to fall 18% year-over-year amid reduced demand from cryptocurrency miners.
  • Ethereum’s move to proof-of-stake from proof-of-work in September undermined demand for mining GPUs or graphics processing units.
  • Nvidia’s data center sales disappointed in the second quarter but remain a key growth engine for the chip developer.
  • New US export restrictions on sales to China could cost Nvidia $400 million in annual revenue.

Nvidia Corp. (NVDA) releases its quarterly earnings report Nov. 16 after market close as demand for its computer chips is hurt by economic slowdowns in Europe and China and a fall in cryptocurrencies.

Nvidia’s share price is down 45% this year (see chart below). Analysts expect third-quarter revenue to be down 18% year-over-year. The saving grace has been strong growth in data center chip sales, which are expected to double in two years amid rapid adoption of e-commerce and cloud-based applications. Performance in this segment will be important to the company’s results for the quarter through October, which is expected to show it earned 71 cents per share on an adjusted basis, versus $1.17 a year earlier, on the based on consensus analyst forecasts.

Another key to the company’s results is the extent to which demand for Nvidia’s processors has been affected by the recent crash in cryptocurrency prices and, more importantly, Ethereum’s switch in September to a method of proof of participation for the validation of the blockchain from the “mining” or computerized. mathematical problem solving. In May, Ethereum accounted for 97% of mining revenue generated by graphics processing units (GPUs) like those from Nvidia, according to one estimate.

Nvidia says it cannot estimate the contribution of cryptocurrency mining to demand from its processors, although the company’s chief financial officer acknowledged that it fell in the quarter ended July 31. In the same conference call, the CEO of Nvidia said that demand for cryptocurrency mining has supported the prices of its products. An analyst at Robert W. Baird & Co. estimated that crypto miners accounted for up to 35% of demand for graphics processing units at their peak. In a sign that demand for crypto has continued to falter, Nvidia has reportedly released an update for one of its GPUs without the hash rate limits it previously used to make its products less appealing to miners.

Nvidia also recently launched a new graphics processor specifically for Chinese customers, as the company seeks to replace some $400 million in sales jeopardized by recent US export restrictions. Analysts may ask for more information on the company’s longer-term plans in China given the deterioration in US-China relations.

While data center growth has weathered economic headwinds in recent quarters, analysts will be on the lookout for any slowdown following recent cost cuts by some of the biggest tech companies, which are customers from Nvidia. Amazon Web Services, a leading data center operator, posted the slowest growth rate in eight years for its latest quarter at 27.5%, and Amazon (AMZN) later confirmed it had frozen hiring, while planning to lay off around 10,000 workers.

Meta Platforms (META), owner of Facebook and Instagram, recently announced the layoff of more than 11,000 employees, though its aggressive data center investment plans remain positive for Nvidia.

Source: Trading View.

Source: Trading View

Nvidia revenue history

The company’s second-quarter fiscal 2023 results missed analysts’ estimates, even though Nvidia had pre-announced the disappointing numbers two weeks earlier. Earnings were impacted by a charge of $1.34 billion, primarily due to inventory discounts amid lower demand expectations. Gaming segment revenue fell 44% sequentially in the second quarter, accounting for just over half of data center sales.

In that report, Nvidia forecast third-quarter revenue of $5.9 billion, plus or minus 2%, with gaming revenue, including crypto, expected to decline further, while data center revenue would increase sequentially from the second quarter. The stock reversed an after-hours decline to gain 4% the following day, although it has since lost more ground.

The company’s results for the first quarter of fiscal 2023, released in May, beat estimates. The stock price rose 5.2% the next day.

Nvidia Key Stats

Estimate for
Q3 2023
Q3 2022 Q3 2021
Adjusted profit
Per share ($)
0.71 1.17 0.73
Revenue ($B) 5.8 7.1 4.7
Data Center Revenue ($B) 3.8 2.9 1.9

Sources: Visible Alpha, Nvidia and reports

The key metric

Nvidia’s Data Center segment includes sales of processors for data center platforms and artificial intelligence (AI), high performance computing and accelerated computing systems. As such, it relies primarily on enterprise customers, while the end markets for its gaming processors are heavily dependent on gamers and other retail buyers.

Data center processors are designed to accelerate compute for the most intensive workloads, including AI, data analysis, graphics and scientific computing, in hyperscale data centers, cloud, d enterprise, public sector and periphery. Products include energy-efficient GPUs, data processing units (DPUs), interconnects and systems, and the CUDA programming model, as well as software libraries and development kits.

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