Nvidia Plunged After Its Warnings; It Will Rise After...
$NVIDIA Corp(NVDA)$ plunged 6.3% after a rare quarterly earnings warning, with revenue falling sharply short of expectations.
1. Gaming Business Is To Blame
In the 2Q FY 2023, NVIDIA reported total revenue of $6.7 billion, significantly lower than the company's guidance of $8.1 billion, with a yoy growth of only 3%, far lower than the 46% growth rate in the previous quarter.
Chart made by Value_investing
The main reason is the poor gaming business:
revenue in the 2Q was only $2.04 billion, a sharp decline of 33.4% year-on-year, compared with a 31% increase in the 1Q.
Chart made by Value_investing
Gaming is Nvidia's core businesses, accounting for 43.7% of revenue in the 1Q FY2023. It heavily impacts the overall performance.
2. Another Cycle Like 2018
The last time the gaming business collapsed in late 2018. The global economy was sluggish and US GDP growth fell from 3.4% to 0.9%. At the same time, the price of bitcoin fell from $6,400 to $3,183. (It is well known that Nvidia's gaming graphics cards can be used for mining.)
Now the European and US economies are plagued by inflation in the second quarter and consumer demand is down. Meanwhile, the price of bitcoin has slumped, falling from $47,700 to $23,800.
Since the beginning of the year, news of graphics card prices and declining PC sales have made headlines.
The bad performance of gaming was also expected by the market. That also explained why $NVIDIA Corp(NVDA)$ plunged nearly 60% from the high point.
3. Data Center: A New Growth Engine
NVIDIA's another major business is the data center, with second-quarter revenue of $3.81 billion, up 61% year-on-year. Data center slightly missed expectations due to supply chain disruptions.
Chart made by Value_investing
The data center business has become an engine of growth for NVIDIA as well as AMD. Enterprise demand for cloud transformation remains strong.
In the 1Q, the data center has become NVIDIA's biggest revenue source.
After the revenue decline in the gaming business, the importance of data center has increased again, accounting for 56.9% revenue in 2Q.
It is worth noting that the automotive business had record high revenue. It may become a new growth pole.
4. Stock Will Rise After...
Although the second quarter report is disappointing, these influence have been priced in.
The plunge merely verified the market's previous suspicions. Nvidia's valuation reached the low level after plunge:
Data from Bloomberg
In the 2018 semiconductor down cycle, Nvidia bottomed out shortly after the plunge in the gaming business. Four quarters later, the gaming business returned to growth and the share price took off again.
But now that the data center revenue has increased significantly, it will take a shorter period for the stock to rebound.
The 2Q report will be released on August 24, and management will provide guidance for the third quarter results.
I think Nvidia will rise after this quarterly report.
What do you think of Nvidia's plunge?
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Purchasing some stock on the dip Nvidea