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Weakness in data center biz unlikely to recede for NVIDIA in Q2

By Toby |

Semiconductor giant NVIDIA Corporation (NASDAQ: NVDA) has seen its shares gain 11.7% so far this year, after going through its own share of ups and downs. NVIDIA underperforms the 35% growth recorded by SPDR S&P Semiconductor and 25% growth registered by iShares S&P Semiconductor.

The stock had touched a peak around the last week of April, but the see-sawing US-China relations have pulled it down since then. The company has also been battered by the weakness in the gaming and data center GPUs, a factor that is not likely to recede when the company reports second-quarter 2020 results after the closing bell on Thursday, August 15.

nvidia stock
Image by JacekAbramowicz on Pixabay

The market expects second-quarter earnings to decline to $1.14 per share from $1.94 per share a year ago. Meanwhile, revenues are projected to fall 18.5% to $2.55 billion. In the trailing four quarters, the chipmaker has surpassed bottom-line estimates thrice.     

In the first quarter, the company surprised investors with an earnings beat and revenues that met the market consensus, due to better-than-expected to rebound in the gaming GPU market. However, citing lack of clarity in the demand for data center GPUs, the refrained from providing a full-year outlook.

It may be noted that the gaming segment accounted for almost half of Nvidia’s revenues in Q1, while the data center business was the second-largest, accounting for more than a quarter of total revenues. This was despite the gaming segment witnessing a 39% year-over-year decline and a 10% fall in the data center unit.

NVIDIA underperforms the 35% growth recorded by SPDR S&P Semiconductor and 25% growth registered by iShares S&P Semiconductor.

READ: Dropbox Q2 earnings: Slow growth in revenue, ARPU disappoint investors

A repeat of better-than-expected gaming rebound like that witnessed in Q1 cannot be ruled out in Q2. Normalization of inventory levels could relatively keep the segment stable, ahead of the launch of its new gaming cards. However, much of this growth could be offset by the data center unit.

During the earnings conference call, keep a close track of any updates relating to the automotive unit, as autonomous driving and artificial intelligence continue to evolve at a rapid pace.  

Nvidia has a Moderate Buy rating in the market with a 12-month average price target of $187.43, a 23% upside from Monday’s trading price.

Get access to timely and accurate verbatim transcripts that are published within hours of the event.

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