Nvidia NVDA 5.86% may be the chip company for the metaverse, but even they can’t escape the real world sometimes.
Financial results for Nvidia’s fiscal first quarter ended May 1 came in ahead of expectations, at least in the key business segments of videogames and data centers. Revenue surged 46% year over year to about $8.3 billion and adjusted operating earnings jumped even more, by 55% to a record high of nearly $4 billion.
But Nvidia’s revenue forecast for the current quarter was about 4% below Wall Street’s targets—a notable miss for a company that has projected above the consensus view for the last nine quarters by an average of 10% each time, according to FactSet data.
The disappointing forecast stems from a projected $500 million hit from lost sales in Russia and Covid-19 lockdowns in China. The latter is a particularly important market for Nvidia’s gaming chip business. And as Chief Executive Officer Jensen Huang noted in an interview, “when large cities are locked down, no one can buy our products.”
But the downbeat view also confirmed many fears that Nvidia’s booming videogames business is finally slowing. That unit comprises nearly half of Nvidia’s total business, and has averaged 54% year-over-year growth over the last eight quarters. But the multiple pressures of supply-chain challenges and inflation could be starting to take their toll. Nvidia projected that its games revenue would fall sequentially in the current quarter, which would be the first such drop in eight periods.
Nvidia’s data center business has become a major saving grace though. Revenue there surged 83% year over year to nearly $3.8 billion in the latest quarter, and Nvidia projected “strong sequential growth” for the current period. Data center revenue actually surpassed games in the recent quarter, another trend expected to continue thanks to booming cloud computing demand and efforts by companies like Facebook -parent Meta Platforms to build out their metaverse ambitions.
Wall Street expects Nvidia’s data center revenue to jump 55% in the current fiscal year to $16.5 billion and to comprise more than half of the company’s total revenue in fiscal years ahead.
All that was well baked into Nvidia’s stock when it was fetching more than 60 times forward earnings late last year. But the market’s brutal tech correction has cut that multiple in half, and Nvidia’s premium to the PHLX Semiconductor Index is now well below what it has averaged to the peer group over the last four years.
Nvidia’s share price picked up nearly 4% Thursday following the latest results—indicating that investors understand the chip maker still has plenty of game.
Write to Dan Gallagher at [email protected]
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