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Nvidia’s big reset has analysts wondering if the company is clear now

By Emily Bary and Wallace Witkowski

The company released a pessimistic revenue forecast

Nvidia Corp. presented a final quarter outlook well below analysts’ expectations as the chip company faces a host of challenges, including declining demand for its gaming and professional viewing products, macroeconomic pressures on spending and supply. chain disturbances.

Shares of Nvidia (NVDA) fell as much as 2% in early trading Thursday but then rose, last up 3%, against a gain of less than 1% on the S&P 500 index.

The company’s pessimistic revenue forecast, which was almost $1 billion lower than the FactSet consensus, was not particularly surprising on Wall Street, given that Nvidia had already telegraphed its in-game challenges. when it pre-announced a sharp loss of revenue for the last quarter earlier in August.

But while analysts weren’t optimistic in Nvidia’s latest report, the questions now turn to the future. Specifically, a key debate on Wall Street revolves around whether Nvidia’s stock has been “de-risked” or re-secured, after management’s moves to realign expectations.

“We believe the October quarter should mark the revenue trough for Nvidia,” Piper Sandler analyst Harsh Kumar wrote in a note to clients.

He pointed out that Nvidia appears to be “taking hard medicine in gaming,” but that its management team expects game inventory to normalize by the end of the year.

“We strongly believe that Nvidia’s data center business should normalize shortly, while gaming growth should begin next year,” Kumar wrote. “These trends, along with the momentum of AI and the Omniverse, keep us optimistic about the future.”

It has an overweight rating and a price target of $235 on the stock.

Opinion: Nvidia has dealt with this type of slowdown before and seems to have a specific goal in mind this time around

Matthew Ramsay of Cowen & Co., however, expressed a little more caution on the bigger picture.

“Painful but necessary and welcome crypto game/fix inventory,” he wrote. “However, despite the upcoming Lovelace and Hopper product launches in Gaming and Datacenter, respectively, we left tonight’s call feeling the same as we entered it…just enough niggling doubts in Datacenter to prevent the” all clear “for stock.”

Ramsay noted that it was not particularly shocking to see Nvidia making inventory write-downs for the gaming sector, although he did not expect the company to do so in the center area as well. of data.

“The inclusion of data center inventory write-downs came as a surprise, especially when combined with supply chain issues resulting in a push-pull in ordering patterns and customer deliveries,” wrote Ramsay. “Management attributed this to a significant reduction in large-scale spending in China given the macroeconomic conditions, exacerbated by kit issues, particularly in networking…which negatively impacted the ability to company to respond fully to demand.”

He maintained an outperform rating and a $200 price target on the stock, which has fallen 41% so far this year as the S&P 500 has lost 13%.

Evercore ISI analyst CJ Muse, which has an outperform rating and a price target of $225, said he was also surprised by the data center writedowns and that the report is “quite reminiscent of the consternation of investors in the first 8-9 months of 2019″. (stable equities) which then turned into a huge outperformance (+200% over the next 5 quarters) as equities climbed the wall of worry in 4Q19 and throughout 2020, led by significant cycles of 7nm data centers and gaming products.”

“Overall and guided by the expectation of further topline acceleration driving positive earnings momentum, we see potential for a repeat of 4Q19-4Q20 in 2023,” Muse said.

Citi Research analyst Atif Malik, who has a buy rating and target price of $248, said Nvidia “remains a data center story with a major automatic inflection next year.”

“While investors would have liked Nvidia to guide the data center to reduce the risks of potential macro-related business weakness, we expect sequential gaming growth to resume during Jan-Q as Nvidia exits inventory correction after channel clearing ahead of new Ada Lovelace product.”

Bernstein analyst Stacy Rasgon, who has an outperform rating and a price target of $210, said investors expected third-quarter guidance to be lousy after the early August warning.

“While the results were a little mind-blowing (and not in a good way), we don’t think we necessarily hate the way it’s going,” Rasgon said. “Clearly the company is significantly undervaluing the game. Data center is holding up well with risk-free China. Auto is inflecting. We should never have to worry about a crypto cycle again. And as the dust settles, we have two brand new product cycles expected to kick off within the next quarter or two.”

Of the 44 analysts covering Nvidia, 34 have buy ratings, 9 have hold ratings, and one has a sell rating, with an average price target of $227.12.

-Emily Bary

 

(END) Dow Jones Newswire

08-27-22 0954ET

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