Nvidia Crushed Earnings Estimates. Its Stock Is Slipping.

Nvidia Crushed Earnings Estimates. Its Stock Is Slipping.

A sign is posted in front of the Nvidia headquarters

Justin Sullivan/Getty Images

Nvidia returned to its roots when it reported earnings late Wednesday with videogame chip sales once again outpacing its data-center business as the company remakes itself into a company positioned to take advantage of computing’s future.

The San Jose, Calif.-based company topped estimates, and issued a forecast that beat expectations. But the company warned investors that it was running into supply constraints in the fourth quarter for components to manufacture its latest chips and systems.

Despite topping consensus estimates, the results appeared to spook investors. After a brief 1.7% surge in the extended session Wednesday, the stock had dropped roughly 2% by 7:00 p.m. Eastern time.

Nvidia (ticker: NVDA) is in the middle of a transformation from a company once known for its powerful chips that generate videogame graphics, to a company whose chips run some of the world’s most advanced data centers with chips designed for artificial intelligence and machine learning. Last quarter, its data-center business, in part aided by the Mellanox acquisition, outpaced its videogame chip sales that have for decades been the company’s revenue and profit backbone.

Handily beating analyst estimates, the chip maker reported fiscal third-quarter net income of $1.34 billion, which amounts to $2.12 a share, compared with a net profit of $899 million, or $1.45 a share, in the year-ago period. Adjusted for stock compensation, among other things, earnings were $2.91 a share. Revenue rose 57% to $4.73 billion from $3.01 a year ago.

Analysts had expected earnings of $1.68 a share on sales of $4.42 billion; the adjusted earnings consensus was for $2.58 a share.

“Nvidia is firing on all cylinders, achieving record revenues in Gaming, Data Center and overall,” CEO Jensen Huang said. “The new Nvidia GeForce RTX [graphics processing unit] provides our largest-ever generational leap and demand is overwhelming. Nvidia RTX has made ray tracing the new standard in gaming.”

Breaking down Nvidia’s business lines, the company reported slightly higher than expected revenue from videogames—mostly the graphics chips it sells that power videogames on personal computers—reporting sales of $2.27 billion, compared with the consensus estimate of $2.1 billion. Nvidia said that sales benefited from its new graphics cards announced in September and console chip sales, likely referring to those that power the Nintendo Switch.

In an interview with Barron’s, Nvidia CFO Colette Kress said that the company does not see its base of customers fully adopting its latest technology even though the company’s videogame chips have sold well.

“So when we go generation to generation and providing a new architecture for the consumer market, by the time we actually launched the next generation afterwards, we are still probably not at 100% install base on the most current architecture,” Kress said. “You will have different variations of that because it comes in a wave: We’ll start with the desktop, then we’ll move to the notebook versions, and we [eventually] will come out with a host of different products.”

Data-center sales also beat expectations. Nvidia reported revenue of $1.9 billion when Wall Street expected $1.8 billion. Israeli networking company Mellanox, which Nvidia acquired earlier this year, contributed roughly a third of data-center sales. But the segment was pushed higher because of the new Ampere-based semiconductors.

Kress said that demand for the new Ampere chips both for videogames and data centers has put pressure on the companies’ suppliers and manufacturing partners. “We are supply constrained in [the fourth quarter] for both gaming and for data center,” Kress said.

Nvidia’s other segments, such as automotive and professional visualization, also beat consensus predictions.

The company said that it expected to generate fiscal fourth-quarter sales of $4.8 billion, well above the consensus estimate of $4.41 billion. Nvidia didn’t provide per-share earnings guidance for the fourth quarter.

Nvidia stock closed Wednesday’s regular session up 0.1% to $537.15. The stock has advanced 128% this year, as the PHLX Semiconductor index rose 37%.

Write to Max A. Cherney at max.cherney@barrons.com

Leave a Reply

Your email address will not be published. Required fields are marked *