Outlook Adjusted: NVIDIA Shares Suffer from Lower Revenue Outlook: What Role Did Recent Crypto Crash Play? | news

• NVIDIA downgrades outlook
• Weak gaming sector
• Crypto crash as a trigger?

NVIDIA disappointed with revenue outlook

After chipmaker NVIDIA recently scaled back its sales forecast, investors took to their heels. For the second quarter of 2022, the company is now aiming for total sales of $6.7 billion instead of $8.1 billion – more than the same period last year, but 19 percent less than the first quarter of the current year. A 44 percent decline has even been estimated since the first quarter of 2022. In particular, a decline in sales in the gaming segment of the Santa Clara-based tech giant drove down the forecast. Here, revenue in the second quarter is expected to have fallen by a third to $2.04 billion compared to the same period last year. “Our forecasts for sales of gaming products fell significantly during the quarter,” NVIDIA CEO Jensen Huang said in a press release. “As we expect the macroeconomic conditions affecting sales to continue, we have taken steps with our gaming partners to adjust pricing and inventory.” Demand for NVIDIA’s gaming products such as graphics cards, gaming laptops, matching monitors and the SHIELD streaming box has fallen due to consumer concerns about the economy and high inflation rates.

Video game spending fell in the broad quarter of 2022

NVIDIA is actually not entirely wrong: According to data from market researcher NPD, US consumers spent 13 percent less money on video games in the second quarter of 2022, a total of $12.35 billion. “Higher prices in everyday consumption categories such as groceries and gas, the return of experiential spending such as travel and attending live events, a reduced supply of new games and continued shortages of new-generation consoles all likely contributed to the second-quarter decline,” explained NPD analyst Mat Piscatella in a statement. “After a period of sustained growth, consumer spending remains above pre-pandemic levels. However, unpredictable and rapidly changing conditions may continue to affect the market in unexpected ways in the coming quarters.”

In addition to NVIDIA, console manufacturers such as Microsoft and Sony have already felt this decline, but Grand Theft Auto developer Take-Two and Final Fantasy studio Square Enix are also complaining about declining sales figures.

Crypto Market Decline Responsible for Backlash?

In its announcement, NVIDIA focused primarily on the gaming sector and ignored the use of powerful chips for mining cryptocurrencies, but according to analyst Melissa Fairbanks from the investment bank Raymond James, the market for mining Bitcoin & Co. certainly played a role. “We believe that while sentiment around consumer spending is very negative, the current reprieve should represent a sort of ‘clean-up’ after a period of unusually strong demand,” the strategist said in a note shared with MarketWatch. The 44 percent drop since the first quarter of 2022 is of the same order of magnitude as that seen after the crypto crash of 2018, according to Fairbanks. At that time, the depreciation of the crypto market at NVIDIA led to a sudden drop in the sales of graphics cards based on the Pascal processor architecture for miners, as reported by “VentureBeat”. Overall, the “post-crypto slump” led to a cost burden of more than 57 million US dollars for the chip developer. The group explained to analysts that stocks of the graphics cards in question were above expectations. However, after prices were lowered, demand for chips did not increase quickly enough. But instead of saturating the sales channel with even more processors, they wanted to gradually sell off the existing stocks. So could the weakened cryptocurrency market have turned NVIDIA’s tour upside down?

Ethereum merger threatens chip demand

Back in April 2022, the market portal Barron’s warned that NVIDIA shares could suffer from a drop in demand, which would intensify as the Ethereum blockchain transitioned from the current “proof-of-work” standard to the less computationally intensive ” “Proof- of” -Stake” procedure is performed. This means that the powerful cards would no longer be needed for mining ether. The Ethereum merger is currently targeted for September.

Buy recommendations prevail despite uncertainty

Fairbanks lowered his price target on NVIDIA shares from $250 to $240 amid recent uncertainty at NVIDIA. Nevertheless, the expert sticks to her “strong buy” recommendation. Although the gaming division – and possibly also the cryptomining business – is currently weakening, the group can offer long-term growth in the areas of data centers, cars and software. Out of a total of 32 analysts named on TipRank’s research platform, 25 recommend buying NVIDIA stock, while seven give a “hold” recommendation. The average target price is currently $233.69, just below Fairbanks’ estimate.

NVIDIA shares on a losing streak – eye on buyback program

However, the strategist’s price target is far from the current price level: most recently, NVIDIA shares on NASDAQ still cost 179.42 US dollars (closing price on August 11, 2022). After the announcement of the weak sales outlook alone, the stock lost 6.30 percent. Since the beginning of the year, the tech title is already down 39.00 percent.

Despite the recent challenges, the group wants to continue its buyback program, as CFO Colette Kress explained according to the press release. “We believe our long-term gross margin profile is intact,” she is quoted as saying. “We have slowed the growth in operating costs by balancing investments for long-term growth while managing profitability in the short term. We plan to continue to buy back shares as we expect strong cash generation and future growth.”

The group will present the final data for the second quarter of 2022 on 24 August.

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