By Wallace Witkowski
Stock gets upgrade after China data-center plan appears to work, inventory keeps clearing out
Nvidia Corp. has experienced a fall from grace in the past year as its market value has plunged by more than half from a peak of $834 billion last November, but some analysts see the potential for better times ahead coming out of the company's latest earnings report.
At least one analyst upgraded Nvidia's stock (NVDA) in the wake of that Wednesday afternoon report, which offered more visibility into the chip maker's workaround to preserve data-center sales in China and clear out inventory as it launches new products. Nonetheless, Nvidia shares were off 0.5% in morning trading Thursday, after trading up as much as 2% after hours Wednesday.
Late Wednesday, Nvidia said it largely avoided a $400 million shortfall as it was able to offer modified data-center products allowed by U.S. regulations to Chinese customers, and that it continued to work with customers to help clear excess inventory out of the sales channel as it introduces next-generation products.
As a result, Summit Insights analyst Kinngai Chan upgraded Nvidia to a buy rating from a hold as he sees tailwinds for the chip maker in 2023 following the report.
"We believe the downside from the crypto-mining demand and the export restriction of data center products to Chinese customers are now behind the company," Chan said. "Our checks also indicate channel inventory of its gaming GPUs has reached a manageable level."
PC sales are seeing their steepest decline since data started being collected in the 1990s after a two-year surge, and spending on video games and gear for them has also come back to earth. At the same time, drops in cryptocurrency prices have made mining less profitable; Nvidia cards have been used extensively to mine for ethereum and other crypto.
Read: Nvidia earnings chopped in half, but tweaked servers to China offset earlier $400 million warning
Bernstein analyst Stacy Rasgon, who has an outperform rating and a $200 price target, said the report was "better than it could have been."
"The company's trajectory has been under significant pressure for some time," Rasgon said. "However, it is now getting easier to suggest that the bottom for numbers is likely in as the channel normalizes and they navigate around regulatory restrictions."
"And from here we now have several product cycles to look forward to (typically a good set-up) with initial signs positive in both gaming and datacenter, with strong initial uptake of new Ada Lovelace parts and the Hopper launch now kicking off (and with the medium-term story hinging on Hopper, the company believes the overall H100 ramp will be even faster than Ampere)."
On the call with analysts, Nvidia Chief Financial Officer Colette Kress told analysts that the company started shipping its H100 Hopper data-center product in the third quarter, and that base systems from manufacturers like Dell Technologies Inc. (DELL), and Hewlett-Packard Enterprise Co. (HPE) available beginning this month.
Evercore ISI analyst C.J. Muse, who has an outperform rating and a $225 price target, called the results mixed as a $702 million write-down for A100 products that had been earmarked for China made Nvidia miss on earnings, even as revenue came in higher than expected.
Still, resiliency in the data-center business and product cycles suggested continued outperformance amid fears that cloud spending is slowing, Muse said.
"Here we highlight limited impact from the China AI embargo and continued resilience in spending by leading U.S. hyperscalers as well as select industry verticals including automotive and energy," Muse said.
As for gaming, Muse believes the segment has already bottomed out "with gradual recovery into 2023 helped by the Ada Lovelace product launch." Also, on Wednesday, Nvidia released its mid-range RTX 4080 gaming chip, following the release of its flagship RTX 4090 chip on Oct. 12
Nvidia reported revenue of $5.93 billion, coming close to the $5.57 billionAdvanced Micro Devices Inc(AMD) reported for its third quarter. The last time AMD topped Nvidia in quarterly revenue was the third quarter of 2014, when AMD reported sales of $1.43 billion and Nvidia reported $1.23 billion, according to FactSet data.
Nvidia's data-center sales rose 31% to a record $3.83 billion, compared with AMD's 45% rise in data-center sales to $1.6 billion, and Intel's (INTC)27% drop to $4.2 billion.
Of the 42 analysts who cover Nvidia, 30 have buy ratings, 11 have hold ratings and one has a sell rating, with an average price target of $188.23, a 17% premium over the current price, according to FactSet data.
At Wednesday's close, Nvidia shares were down 42% for the year, compared with the 32% decline in the PHLX Semiconductor Index , the 17% decline on the S&P 500 index , and a 29% drop on the tech-heavy Nasdaq Composite Index .
Emily Bary contributed to this report
(END) Dow Jones Newswires
November 17, 2022 09:44 ET (14:44 GMT)
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