On August 8, Nvidia Corp NVDA shared preliminary second-quarter revenue of $6.70 billion versus the previous outlook of $8.10 billion.
The revision was attributable to lower sell-in of Gaming products, reflecting a reduction in channel partner sales likely due to macroeconomic headwinds. It also implemented pricing programs with channel partners to reflect challenging market conditions likely to persist into the third quarter.
Barclays analyst Blayne Curtis had an Overweight rating on Nvidia and a $200 price target, down from $295. Gaming reset was worse than shallow expectations and even included a $1.3 billion charge suggesting a weak outlook into the fall, he noted.
Data Center missed slightly on supply chain issues, but investors will likely rally behind the de-risked gaming estimates if DC can hold in for CY23.
Mizuho analyst Vijay Rakesh reiterated a Buy and cut the PT from $290 to $250. The re-rating reflected declining crypto share and weaker Consumer PC/Gaming.
NVDA noted that July quarter Gaming saw lower channel sell-through due to macro risks likely to persist in the October quarter. Data Center was slightly weaker due to supply chain disruptions.
Rakesh saw NVDA well-positioned with Data Center and AI leadership, and the near-term reset could be an attractive entry point.
Rosenblatt analyst Hans Mosesmann reiterated a Buy and cut PT from $400 to $320. Nvidia negatively preannounced its July quarter this morning, now expecting a 19% Q/Q sales decline driven by a collapse in Gaming down 44% Q/Q as discretionary spending and macroeconomic headwinds impact the company's consumer business, he noted.
The magnitude of the revision surprised him and reflected a significant change in market dynamics that he believes has little to do with crypto mining issues.
Mosesmann believed that part of the discrete GPU AIB market also saw a fair amount of inventory stuffing in the channel earlier in the year, leading the GPU segment to a depressed sales level through the rest of calendar 2022.
Lowering the bar on Gaming is something that Morgan Stanley analyst Joe Moore sought. It meaningfully reduces the risks that have kept him on the sidelines for 4-5 months, and he is constructive.
But the rally in NVDA ($182 PT) stock while numbers come down amid growing data center risk leaves him Equalweight for now. Joe notes that Gaming was down 44% Q/Q to $2 billion, vs. last quarter's $3.6 billion and his estimate of $3.2 billion.
Beyond the October quarter, there are two significant impacts to consider, somewhat offsetting Joe. He anticipates that the launch of the 40 series, code-named "Lovelace," will have a material positive impact.
But Joe also believes that the migration of Ethereum to proof of stake will result in the obsolescence of multiple billions of dollars of mining capacity.
Joe does anticipate that there will be an inventory digestion phase in the cloud next year. Still, he is modeling assuming that the company continues to see solid growth even in an overall digestion cycle, but there is some risk.
Price Action: NVDA shares traded lower by 3.73% at $171.30 on the last check Tuesday.
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