NVDA Earnings Preview: Nvidia probably had yet another weak quarter

Nvidia Corporation (NASDAQ: NVDA) is among the few tech companies that failed to take full advantage of the COVID-induced digital transformation. The semiconductor company that dominates the GPU market has been hit by falling PC sales and growing competition.

Nvidia’s stock maintained a steady uptrend so far this year, continuing the recovery that started in the second half of last year. Earlier, NVDA had been in a free fall after peaking a year ago. Economic uncertainties and high inflation, combined with the continuing slowdown in the crypto market, are the main challenges facing the company now. The bad news is that the demand for gaming chips might not recover in the near term.

Outlook

Considering the weak outlook, investor sentiment is unlikely to improve in the near future. That makes the stock a risky investment option. In the long term, the business will bounce back as external conditions improve. Nvidia’s focus on technology adoption and AI-enabled product offerings should take it to the recovery path. The company’s innovative Accelerated Computing solutions have become more relevant than ever, against the backdrop of the slump in general-purpose computing.

In the third quarter, it was yet another dismal show by the company, with the top line falling in double digits to $5.93 billion. Though the core Data Center business grew, it was not enough to offset a 51% drop in Gaming revenue. Consequently, earnings, adjusted for special items, dropped by 50% to $0.58 per share. While the top line came in above estimates, earnings missed expectations for the first time since the company started reporting quarterly results.

Q4 Report Due

The weakness experienced in the early part of 2022 is estimated to have extended into the final three months of the year. When the company reports fourth-quarter results on February 22 after the closing bell, the market will be looking for a 39% fall in adjusted profit to $0.81 per share. Fourth-quarter revenues are seen contracting by a fifth year-over-year to around $6 billion.

From Nvidia’s Q3 2022 earnings conference call:

“Now, looking at our inventory that we have on hand and the inventory that has increased, a lot of that is just due to our upcoming architectures coming to market. our ADA architecture, our hopper architecture, and even more in terms of our networking business. We have been building for those architectures to come to market and as such to say. We are always looking at our inventory levels at the end of each quarter for our expected demand going forward.”

Why investors should add Nvidia stock to their watchlist

The stock traded lower throughout Wednesday’s session, reversing the recent trend. It has gained an impressive 59% since entering 2023 on a positive note.