Nvidia Profit Seen Down Amid Crypto Crash, Tech Cuts

Key Takeaways

  • Nvidia is expected to post adjusted earnings of 71 cents per share for the third quarter at the end of November 16.
  • Revenue is down 18% year-on-year due to lower demand from cryptocurrency miners.
  • Ethereum’s move to proof-of-stake from proof-of-work in September reduced demand for GPUs or graphics processing units.
  • Nvidia’s data center sales disappointed in Q2, but remain a key driver of growth for the chip maker.
  • New US export restrictions on trade to China could cost Nvidia $400 million in annual revenue.

Nvidia Corp. ( NVDA ) kicks off its quarterly earnings report on Nov. 16 after the market close as demand for computing chips has been hurt by an economic slowdown in Europe and China and a slump in cryptocurrencies.

Nvidia’s stock price is down 45% this year (see chart below). Analysts expect third-quarter revenue to fall 18% year-over-year. The saving has been a surge in chip sales for data centers, which have doubled in two years as e-commerce and cloud applications surge. The segment’s performance will be key to the company’s results in the quarter through October, and the company is expected to earn 71 cents a share, compared with $1.17 in the year-ago period, based on analysts’ consensus estimates.

Another key to the company’s results is how much demand for Nvidia processors has been hurt by the recent collapse in cryptocurrency prices and, more importantly, Ethereum’s September switch to a proof-of-stake method of blockchain validation from “mining,” or computer-based. solving math problems. In May, Ethereum accounted for 97% of mining revenue generated by graphics processing units (GPUs) such as Nvidia.

Nvidia says it can’t estimate the contribution of cryptocurrency mining to demand for its processors, although the company’s chief financial officer admitted it fell in the quarter ended July 31. In the same conference call, Nvidia’s CEO said that demand for cryptocurrency mining has driven up the prices of its products. An analyst at Robert W. Baird & Co. has estimated that crypto miners accounted for as much as 35% of graphics processing unit demand at its peak. As demand for cryptocurrencies has continued to weaken, Nvidia has reportedly released an update to one of its GPUs without the previously used hash rate limits in order to make its products less attractive to miners.

Nvidia also recently released a new graphics processor aimed specifically at Chinese customers as the company seeks to replace about $400 million in sales threatened by recent U.S. export restrictions. Analysts may be looking for more information on the company’s long-term plans in China, given the deteriorating US-China relationship.

While data center growth has been resilient in the face of economic headwinds in recent quarters, analysts will expect any softening after recent cost-cutting by some of the biggest tech companies that are Nvidia customers. Amazon Web Services, a leading data center operator, posted its slowest growth rate in eight years at 27.5% in its latest quarter, after Amazon ( AMZN ) confirmed it had frozen hiring while reportedly planning to lay off about 10,000 jobs employee.

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


Source: TradingView.

Source: TradingView

Nvidia Earnings History

The company’s fiscal second-quarter 2023 results missed analysts’ estimates, although Nvidia had previously announced the disappointing numbers two weeks earlier. Earnings were weighed down by a $1.34 billion charge that primarily discounted inventory amid weaker demand. Gaming segment revenue fell 44% for the second quarter in a row, accounting for just over half of data center sales.

In that report, Nvidia forecast third-quarter revenue of $5.9 billion, give or take 2%, and expected gaming revenue, including crypto, to continue to decline, while data center revenue rose compared to the second quarter. The stock reversed the after-hours decline, rising 4% the next day, though it has lost more since then.

The company’s first-quarter fiscal 2023 results, reported in May, beat estimates. The next day, the share price increased by 5.2%.

Nvidia key statistics

Calculation of
3rd quarter of 2023
3rd quarter of 2022 3rd quarter of 2021
Adjusted earnings
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 news reports

Key metrics

Nvidia’s data center segment includes the sale of processors for data center platforms and artificial intelligence (AI) systems, high performance computing and accelerated computing. As such, it is primarily dependent on the company’s 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 computing for the most intensive workloads, including artificial intelligence, data analytics, graphics and scientific computing, in hyperscale, cloud, enterprise, public sector and edge data centers. Products include energy-efficient GPUs, data processing units (DPUs), interconnects and systems, as well as the CUDA programming model, as well as software libraries and development kits.

Source

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