NVIDIA (NVDA) showed this morning just how much trouble it’s in. The graphics giant pre-announced earnings for the holiday quarter in which it cut its revenue guidance for the quarter to $2.2 billion from $2.7 billion — back to 2017 levels.
Shares of the graphics giant have obviously reacted poorly, falling nearly 15%, which amounts to more than $14 billion in lost value.
In Gaming, NVIDIA’s previous fourth-quarter guidance had embedded a sequential decline due to excess mid-range channel inventory following the crypto-currency boom. The reduction in that inventory and its impact on the business have proceeded largely inline with management’s expectations. However, deteriorating macroeconomic conditions, particularly in China, impacted consumer demand for NVIDIA gaming GPUs. In addition, sales of certain high-end GPUs using NVIDIA’s new Turing™ architecture were lower than expected.
In Datacenter, revenue also came in short of expectations. A number of deals in the company’s forecast did not close in the last month of the quarter as customers shifted to a more cautious approach. Despite these near-term headwinds, NVIDIA has a large and expanding addressable market opportunity in AI and high performance computing, and the company believes its competitive position is intact.
Mizuho analyst Vijay Rakesh commented, “While disappointing, and investors have been expecting a cut, the magnitude of the cut could make investors question management credibility given the significant Crypto overhang. We are lowering our JanQ Rev/ EPS from $2.7B/$1.16 to $2.2B/$0.48, F20E from $13.4B/$7.01 to $10.8B/ $4.45 with significant NT gaming slowdowns, and F21E from $16.5B/$8.37 to $13.1B/$6.32.”
“While we were not able to get much color pending NVDA earnings, given N-T limited visibility on inventory levels and catalysts, NVDA could trade sideways till we get more clarity around its earnings report Feb-14,” the analyst added.
Despite near-term challenges, Rakesh reiterates a Buy rating on NVDA stock, but lowers his price target to $200 (from $230), which implies nearly 50% upside from current levels.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Vijay Rakesh has a yearly average return of 20.4% and a 59% success rate. Rakesh has a 58.3% average return when recommending NVDA, and is ranked #69 out of 5129 analysts.
Overall, the word on the Street rings largely bullish on this chip giant, with TipRanks analytics demonstrating NVDA as a Buy. Out of 31 analysts polled in the last 3 months, 29 are bullish on the stock, while 2 remain sidelined. With a return potential of nearly 65%, the stock’s consensus target price stands at $223.14. (See NVDA’s price targets and analyst ratings on TipRanks)