Nvidia shares fall as China’s COVID shutdowns weaken outlook

Shares of Nvidia Corp. fell in Wednesday’s extended session after the COVID shutdowns in China and the war in Ukraine cut half a billion dollars from the chipmaker’s outlook for the current quarter, while the company announced record results.

For the second fiscal quarter or the current quarter, Nvidia NVDA,
+5.08%
forecast revenue of $7.94 billion to $8.26 billion, while analysts polled by FactSet forecast revenue of $8.4 billion on average. The company said “Russia and China’s COVID lockdowns” were responsible for an expected revenue shortfall of about $500 million in the current quarter.

It is similar to Cisco Systems Inc. CSCO,
+0.53%,
which released its earnings last week and has an April quarter ending like Nvidia. Cisco noted that it was taken aback after Chinese authorities locked down Shanghai from March 27, which threw a wrench in its ability to obtain components. As a result, Cisco issued a poor outlook and stocks had their worst day in over a decade.

No sale to Russia constitutes a $100 million shortfall in Nvidia’s data center business, Colette Kress, Nvidia’s chief financial officer, told analysts on the conference call.

“We estimate that the impact of lower sales in Russia and China will affect our second-quarter game sales by $400 million,” Kress said on the call, which would represent about 11% of game sales. current games from Nvidia.

First-quarter game sales rose 31% to a record $3.62 billion from $2.76 billion, while analysts polled by FactSet expected Nvidia game sales of 3 .46 billion dollars. However, these revenues are expected to decline in the current quarter, further weakening Nvidia’s outlook.

“While we expect continued impact as we prepare for a further architectural transition later in the year, we expect a sequential decline in gaming revenue in the second quarter,” Kress said. “Channel inventory has almost normalized and we expect it to remain around these levels in the second quarter.”

“Now we have a better balance between the supply we have and the prices, not yet perfect, but close to normal levels of what we would like to see,” Kress told MarketWatch in an interview after the analysts call. .

Lately, game cards have come down from the astronomical prices that prevailed last year, when cards were often double their manufacturer’s suggested retail price, or MSRP. Compared to Nvidia’s RTX 3080 card with an MSRP starting at $699, a quick survey shows 3080 cards priced as low as $810 at Best Buy and $850 at Newegg. It should be noted that Kress confirmed that the inventory was built up before China’s lockdown further aggravated sketchy supply chains.

“We still believe our end-use demand remains very strong,” Kress told analysts on the call, adding that gaming revenue is expected to grow year-over-year. Nvidia reported second-quarter revenue of $3.06 billion in the second quarter of 2021.

“But overall, second-trimester gambling will go down from last quarter compared to first-trimester that it will probably go down in the teens as we try to get through some of these lockdowns in China that are holding us back,” Kress said. . “So overall, demand for games is still strong: we still expect end-use demand to be higher year-over-year in the second quarter.”

Nvidia shares fell 7% after hours, after rising 5.1% in the regular session to close at $169.75.

Meanwhile, Nvidia’s first-quarter data center sales jumped 83% to a record $3.75 billion, from $2.05 billion a year ago, as analysts s were expecting $3.6 billion. On the call, Kress told analysts the company sees “continued momentum” and that “customers remain constrained in their infrastructure needs.”

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“All of these different factors, whether it’s just industry recognition of the importance of AI, the transformative nature of these new AI models, recommender systems, big language models, conversational AI, thousands of companies around the world using Nvidia AI in the cloud is driving demand for public cloud,” Nvidia CEO Jensen Huang told analysts on the call. “All of these things are driving the growth of our data centers, so we expect demand for data centers to remain strong.”

Nvidia reported first-quarter net income of $1.62 billion, or 64 cents per share, compared with $1.91 billion, or 76 cents per share, a year ago. Adjusted earnings, which exclude stock-based compensation expense and other items, were $1.36 per share, down from 91 cents per share a year ago. All numbers are adjusted for last year’s 4-to-1 stock split.

Revenue reached a record $8.29 billion, compared to $5.66 billion in the year-ago quarter.

Analysts had forecast $1.30 per share on revenue of $8.12 billion, based on Nvidia’s forecast of $7.94 billion to $8.26 billion.

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Nvidia’s results follow those of major chipmakers like Advanced Micro Devices Inc. AMD,
+1.63%,
Intel Corp. INTC,
+1.27%
and Qualcomm Inc. QCOM,
+2.10%,
while Broadcom Ltd. AVGO,
+1.42%
is due to report on June 2.

Over the past 12 months, Nvidia shares are up 8%, while at the same time being nearly 50% off their closing high of $333.76 set on Nov. 29. In comparison, the PHLX Semiconductor Index SOX,
+1.98%
is down 8% over the last 12 months, the S&P 500 SPX index,
+0.95%
is down 5%, and the Nasdaq Composite Index COMP,
+1.51%
is down 16%.

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