Nvidia ( $NVIDIA Corp(NVDA)$) is scheduled to announce their second quarter fiscal 2022 earnings on August 24 after the closing bell. Nvidia has issued a preliminary earnings result earlier in August, in which their preliminary second quarter revenue of $6.7 billion vs management's original guidance of $8.1 billion. This shortfall was largely due to weaker gaming segment revenue, likely due to macroeconomic headwinds. Their data center revenue was a record but short ofthe company's expectations as it was impacted by supply chain disruptions.
Nvidia ytd performance
Year-to-date performance for Nvidia is down 43%, as part of the sell off in the broader stock market and macroeconomic conditions likethe Russia-Ukraine war, high inflation and interest rate hikes. This was almost unimaginable as back in November 2021, the market cap was $834 billion.
Pricing of GPUs declining
UBS reported that prices of GPUs for Nvidia and AMD has seen a reduction over the past few months, although the rate of decline has slowed. Secondary market sales of Nvidia's GeForce RTX 3000 fell an average of 26% betweenApril and July, while AMD's Radeon RX 6000 fell 29% during the same period. These prices have fallen below MSRP, suggesting supply has caught up with demand and certain customers are clearing out inventory ahead of new products from these companies.
GPU mining factor
GPUs have been used in crypto mining and has been one of the main drivers for GPU sales for Nvidia. Ethereum is scheduled to switch from Proof of Work (generally GPU-based mining) to Proof of Stake (coin ownership) around September 15. As such, no more GPUs will be purchased to mine Ethereum. These used GPUs for mining Ethereum will likely be dumped into used markets and flood the second hand channels. AMD is likely to see these effects in reduction of GPU demand, however their market share is smaller than Nvidia.
Great value or value trap?
The valuation metrics on Nvidia look attractivecurrently. Current Price to Earnings (trailing twelve months) sits at 46x, which is close to a 3-year low. From a Price to Sales (trailing twelve months), it currently sits at 14.5x, also close to a three year low.
Nvidia 3-year PE (TTM)
Nvidia 3-year Price to Sales
Comparing year-to-date performance with itspeers, Nvidia is down 43%, versus AMD down 38.4%, while Intel is down 36.2%.
Nvidia price return vs AMD & Intel (ytd)
Given the current headwinds for semiconductor stocks, the cyclical nature of semiconductors shows that the current metrics present this as a value trap. The drop in gaming demand and the effects of the crypto winter are startingto hurt the revenue and profit margins of companies like Nvidia and AMD.
Nvidia Daily Chart
Depending on how management guides investors expectations, it will be interesting to see ifthe price action can be supported by the 50 daily moving average. If this fails, the next support likely would be at $155, followed by $135 which was a low back in May 2021.
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