Nvidia is under scrutiny for profits; Here’s what to expect

Nearly all of the market’s heavyweights have reported third-quarter financials, but Wednesday (Nov. 16) will take the spotlight on a defeated behemoth.

Nvidia (NVDA) will deliver its F3Q report to an unknown place. In stark contrast to recent years, the company’s stock is 43% in negative territory, falling on declining gaming sales and mitigating data center trends impacted by the new restriction on the export of advanced data center chips to China. These will impact data center sales by as much as $400 million in the quarter.

As such, heading into print, Oppenheimer’s Rick Schafer sees a “soft setup” for F3Q/F4Q (October/January quarters).

Segment-wise, given business project pushouts and U.S. export restrictions counteracting “robust U.S. hyperscale spending,” Schafer now expects Data Center (which accounts for 57% of revenue) to grow 19% year-over-year, but will fall consecutively by 9% .

As for gaming, Nvidia’s main breadwinner not long ago but now accounting for about 30% of revenue, the “correction is expected to hold” until 1H23, with management now working with channel partners to “burn off excess inventory “. On the plus side, highlighting the “resilience” of hardcore performance/enthusiast gamers, the recently launched RTX 4090 sold out, apparently well received.

Elsewhere, the Auto division is expected to show a 66% year-over-year improvement. Although the segment represents only 3% of total sales, Schafer sees it as a “major pillar” of future growth, with the emerging auto industry being led by “increasing ADAS adoption.”

While the near term presents continued difficulties, Schafer sees the current headwinds as “transient”, believing the company’s AI-led structural growth thesis remains “intact”.

“NVDA has an established DC AI hardware/software ecosystem,” the five-star analyst summarized. “We expect mgmt. to leverage NVDA’s leadership position for rapid/material gains in CPU stock following ARM-based Grace’s 1H launch.”

Overall, Schafer says he remains a “long-term buyer” and reiterates an Outperform (Buy) rating for NVDA stock. That rating comes with a $225 price target, suggesting that stocks now have room for 34% growth on the one-year horizon. (To view Schafer’s track record, click here)

In the past 3 months, 31 analysts have contributed NVDA reviews, which break from 23 to 8 in favor of Buys over Holds, all resulting in a Moderate Buy consensus rating. The average target currently stands at $191.96, making room for ~15% share growth in the coming months. (See Nvidia stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is for informational purposes only. It is very important to do your own analysis before making an investment.

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