Earnings Analysis| Nvidia 3 Quarters' Exile
$NVIDIA Corp(NVDA)$ released its official fiscal year 2023 second-quarter report, corresponding to the natural day for the quarter ended July 31 results.
On August 8, Nvidia had issued a second quarterly report warning. Therefore, the market knows the core financial data, investors focus on the three quarterly guidance and results will be.
Worse Than Expected Earnings
Bloomberg analysts' forecast for third-quarter revenue was $6.4 billion, down 9% yoy. NVIDIA's results were worse than the market forecast.
As a result, Nvidia plunged to $164 after the bell following the earnings announcement.
As noted in previous analysis, Nvidia's third-quarter guidance is worse than the second quarter, with expected revenue size of $5.9 billion, a negative year-on-year growth of 16.9%:
The 2Q report has been explained in detail in the previous articles, you can click
[Forecast] Nvidia's Possible Move After Earnings
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This article added some business data and analysis based on the official earnings.
2 Businesses To Blame - Gaming and Professional Visualization
NVIDIA's earnings decline is mainly due to the decline in the gaming and professional visualization business.
- Gaming business declined 33% yoy
Consumer demand for gaming graphics cards declined due to the global economic environment and plummeting cryptocurrency prices.
- Professional visualization grew -3.7%
Affected by economic headwinds, enterprise demand for professional visualization declined.
The downward trend for gaming and professional visualization will continue into the third quarter, leaving only data center and automotive chips as the only strong performing businesses.
At the earnings call, management said:
data center has strong demand and automotive business revenue will grow to $1 billion.
The following chart shows the change in growth rate of each business.
2 Bad News: Gross Margin Plunged + Inventories Surged
As demand declined, Nvidia began promotions and inventory write-downs.
Gross margin in 2Q was only 43.5% due to the $1.22 billion inventory charge and $122 million warranty provision, which is well below the 60% in previous quarters.
The good thing is that the inventory impairment is a one-time event. Company forecasts that the gross margin will recover to about 62.4% in the third quarter, so there is no need to worry about long-term profitability.
Inventory reached $3.89 billion in the second quarter, up 84% year-on-year.
The last time inventory spiked was in the second half of 2018.
By comparing inventory to Nvidia's stock price, we find that they are negatively correlated:
when inventory started to decline in 1Q FY 2020 (corresponding to the quarter of April 28, 2019), Nvidia's stock price bottomed out and rose as inventory declined.
A spike in inventory indicates poor chip sales, and a decline in inventory indicates a new up cycle is expected.
Management expects inventories to come into reasonable condition at the beginning of next year.
Conclusion
It took about 3 quarters to complete de-inventory in 2018. It seems NVIDIA will continue to move sideways at the bottom for about 3 quarters.
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Now what Nvidia?