NVDA jumps off the cliff

Once high flier was crashing into wall due to its weak guidance and slowing revenue growth.

‌$NVIDIA Corp(NVDA)$‌ Q2 2022 total revenue of $6.7 billion was down 19% sequentially and up 3% year-on-year. This is below the $8.1 billion outlook they have provided on the last earnings call. Q3 total revenue guidance is merely $5.9 billion.

The weak revenue was largely due to the decline in Gaming. Some info from NVDA CFO on the earnings call:

- Lower units and lower ASPs

- Marco economics slowdown consumer demand

- Pricing adjustment program with channel partner to prepare for new architecture launch

Many articles argued the slowdown in NVDA gaming revenue has greatly related to the crypto winter as GPU is famously used in crypto mining. However, The CFO of NVDA said on the earnings call:

“We had expected cryptocurrency money to make a diminishing contribution to Gaming demand. We are unable to accurately quantify the extent to which reduced crypto money contributed to the decline in Gaming demand.”

Professional Visualization revenue of $496 million was down 20% sequentially as macroeconomic headwinds intensified. Q3 is expected to have slow demand also. The partnership with Siemens in enabling digital twins could help to expend NVDIA Omniverse.

The 1% sequential growth in Data Center revenue was impacted by lower sales to Chine hyperscale customers. Its near-term future is cloudy due to the recent restriction imposed by US government.

Recently the US government imposing restrictions on exports to China and Russia involving those companies' high-end processors for data centers and artificial intelligence. According to an article by Patrick Seitz on investor Business Daily, NVDA A100 graphics processing unit, or GPU is affected and also the forthcoming H100 chips. He further wrote: “The restrictions threaten about 7% of Nvidia's sales but a much smaller share of AMD's sales, analysts say.”

The bright spot in this Q2 report is the Automotive revenue growth of 59% sequentially. Although Automotive contributed only 3.3% of total revenue, its rollout plan with OEM partners and the S11 billion Automotive design win pipeline will keep the growth momentum.

The ugly gross margin (43.5% on GAAP basis) has partly to do with the $1.22 billion in charges for inventory and related reserves based on revised expectations of future demand and $122 million for warranty reserves. This was a one time event as management is expecting the GAAP gross margin to be around 62.4% for Q3.