Friday turned out to be a nightmare for NVIDIA (NVDA) investors. The graphics giant reported significantly weaker than expected fiscal third-quarter results and fourth-quarter guidance as the “crypto-hangover” appears significantly larger than anticipated.
Specifically, NVDA reported F3Q sales and EPS of $3.18 billion and $1.84, respectively, below analyst estimates of $3.24 billion and $1.93, respectively. More importantly, NVIDIA said for the current holiday season quarter it now expects to record revenues of $2.7 billion, compared to analyst forecasts of about $3.4 billion. That’s a big miss.
NVIDIA shares reacted to the lackluster earnings report diving nearly 19% to $164.24, as of this writing.
In reaction, Needham analyst Rajvindra Gill slashed his price target on NVDA by 35%, from $350 to $225, while maintaining a Buy rating on the stock. The lowered target implies about 37% upside from current levels. (To watch Gill’s track record, click here)
Gill commented, “The “crypto hangover” lasted longer than expected and led to an excess supply of mid-range Pascal GPUs. Prices of these end cards (1050s, 1060s) spiked early this year, and ever since that point have been coming down, but have still been elevated heading into the qrt. NVIDIA was hoping to get the pricing back down to more normal MSRPs. We believe MSRPs are now below pre-launch levels and we expect demand to pick up in April. In FQ4, NVDA will not ship any mid-range Pascal GPUs (account for 1/3 of gaming revenue) to allow channel inventory to normalize […] We believe that the firm will be able to normalize its channel inventory by the end of the fourth quarter of its current fiscal year (Jan), or in the worst case scenario, by the end of the first quarter of the following fiscal year (April).”
“In Q3, revenues for Nvidia’s Datacenter, Professional Visualization and Automotive businesses all hit record levels. Transitioning to Q4, we expect these business units to continue having strong growth and do not expect them to be affected by the firm’s gaming-related channel inventory correction,” the analyst added.
NVDA has a lot of disappointed bulls out today as the stock plummets. According to TipRanks, out of 28 analysts polled in the last 3 months, 20 rate a Buy on NVIDIA stock, while 8 issue a Hold. The 12-month average price target stands at $240, marking a nearly 45% upside from where the stock is currently trading. (See NVDA’s price targets and analyst ratings on TipRanks)