Nvidia: Profits Fall Amid Crypto Crash, Tech Cuts

Key points

• Nvidia is expected to post adjusted third-quarter earnings of 71 cents per share late on November 16.
• Revenue is expected to decline 18% year-over-year due to reduced demand from cryptocurrency miners.
• Ethereum’s transition from proof-of-work to proof-of-stake in September reduced demand for mining GPUs, or graphics processing units.
• Nvidia’s data center sales disappointed in the second quarter, but they remain a key driver of the chipmaker’s growth.
• New U.S. export restrictions to China could cost Nvidia $400 million in annual revenue.

Nvidia Corp. (NVDA) heads to its quarterly earnings report on Nov. 16 after the market closes with demand for its processing chip damaged by the economic slowdown in Europe and China and the collapse cryptocurrencies.

Nvidia’s stock price has fallen 45% this year (see chart below). Analysts expect third-quarter revenue to be down 18% year over year. The saving grace has been strong growth in data center chip sales, which are expected to double in two years thanks to the rapid adoption of e-commerce and cloud-based applications. That segment’s performance will be important to the company’s results for the quarter through October, which is expected to show adjusted earnings of 71 cents a share, up from $1.17 in the year-ago period, according to analysts’ consensus forecast.

Another key driver of the company’s results is how much demand for Nvidia processors has been hurt by the recent collapse in cryptocurrency prices and, more importantly, Ethereum’s move to a test of participation method for Blockchain validate from “extraction,” or computerized math problem solvingStarting in May, Ethereal accounted for 97% of the mining revenues generated by graphics processing unit (GPU) like Nvidia’s, by one estimate.

Nvidia says it can’t estimate how much cryptocurrency mining is contributing to demand for its processors, though the company’s CFO acknowledged that it fell in the quarter ended July 31. In the same conference call, Nvidia’s chief executive said that cryptocurrency mining demand has supported prices for its products. An analyst at Robert W. Baird & Co. estimated that cryptocurrency miners accounted for up to 35% of graphics processing unit demand at their peak. In a sign that cryptocurrency demand has continued to weaken, Nvidia has reportedly released an update for one of its graphics processors without the hash rate caps it previously used to make its products less attractive to miners.

Nvidia also recently released a new graphics processor specifically for Chinese customers, as the company seeks to replace about $400 million in sales jeopardized by recent U.S. export restrictions. Analysts may be looking for more information on the company’s long-term plans in China, given the deterioration of U.S.-China relations.

While data center growth has been resilient to economic headwinds in recent quarters, analysts will be looking for any softening in the wake of recent cost reduction from some of the biggest technology companies that are Nvidia customers. Amazon Web Servicesa major data center operator, posted its slowest growth rate in eight years for its most recent quarter at 27.5%, and Amazon (AMZN) later confirmed that he had hiring frozenwhile it is said to be planning to lay off around 10,000 workers.

Meta Platforms (Metaphysics), the owner of Facebook and Instagram, recently announced layoffs of over 11,000 employeesalthough it is aggressive data center investment plans remain a positive aspect for Nvidia.

Source: TradingView.

Nvidia Earnings History

The company Second Quarter Fiscal Year 2023 Results missed analysts’ estimates, despite Nvidia foretold disappointing numbers from two weeks earlier. Earnings were hurt by a $1.34 billion charge, mostly discounting inventory amid lower demand expectations. Gaming revenue fell 44% sequentially in the second quarter, accounting for just over half of data center sales.

In that report, Nvidia forecast third-quarter revenue of $5.9 billion, up 2%, with gaming revenue, including cryptocurrencies, expected to decline further, while data center revenue has been seen increasing sequentially since the second quarter. The stock reversed an after-hours decline to gain 4% the next day, though it has since lost further ground.

The company First Quarter Fiscal Year 2023 Resultsreported in May, beat estimates. The stock price rose 5.2% the next day.

Nvidia Key Stats

Sources: Visible AlphaNvidia and news

The key metric

Nvidia’s data center segment includes sales of processors for data center platforms and systems for artificial intelligence (AI), high-performance computing, and accelerated computing. As such, it relies predominantly on enterprise customers, while the end markets for its gaming processors are heavily dependent on gamers and other retail buyers.

Data center processors are designed to accelerate compute for the most intensive workloads, including AI, data analytics, graphics, and scientific computing, in hyperscale, cloud, enterprise, public sector, and edge data centers. Products include power-efficient GPUs, data processing units (DPUs), interconnects and systems, and the CUDA programming model, along with software libraries and development kits.

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