Nvidia Stock Slumps After Q2 Earnings, Gaming Chip Sales Outlook

“While Gaming navigates significant short-term macroeconomic challenges, we believe the long-term fundamentals in Gaming remain strong,” said CFO Colette Kress.

Nvidia Corp.  (NVDA) – Get NVIDIA Corporation Report shares slumped lower Thursday after the chipmaker posted weaker-than-expected second quarter earnings Wednesday and forecast more gaming sector weakness in the months ahead.

Nvidia posted adjusted earnings of 51 cents per share for the three months ending in July, the group’s fiscal second quarter, well shy of the Street consensus forecast of $1.26 per share. Group revenues, Nvidia said, rose 3% from last year to $6.7 billion, a figure that was largely in-line with the chipmaker’s pre-announcement in early August but was down 19% from the three months ending in April.

Data center revenues were pegged at $3.81 billion, Nvidia said, a 61% increase from last year. Revenues from gaming chips — which are also used in cryptocurrency mining — fell 33% from last year to $2.04 billion, a figure that also matched the group’s early August update and linked to Covid lockdowns in China and the impact of Russia’s war on Ukraine in Europe. 

Looking into the current quarter, Nvidia said it sees revenues of around $5.9 billion, plus or minus 2%, compared to the Street consensus of $6.95 billion, with gross margins of around 65%, plus or minus 2%. Gaming weakness, Nvidia said, would be partly offset by firmer demand in its automotive and data center businesses. 

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“The decline in Gaming GPU revenue was sharper than anticipated driven by both lower units and lower (average selling prices),” CFO Colette Kress told investors on a conference call late Wednesday. “Macroeconomic headwinds across the world drove a sudden slowdown in consumer demand. We are unable to accurately quantify the extent to which reduced crypto money contributed to the decline in Gaming demand.”

“While Gaming navigates significant short-term macroeconomic challenges, we believe the long-term fundamentals in Gaming remain strong,” she added. 

Nvidia shares were marked 3.1% lower in pre-market trading to indicate an opening bell price of $166.85 each.

The video game sector has been signaling weakness for a few months now, with Take-Two Interactive  (TTWO) – Get Take-Two Interactive Software Inc. Report, the maker of the popular ‘Grand Theft Auto’ video game franchise, clipping its full-year revenue forecast in mid-August. 

Take-Two said full-year revenues would likely come in between $5.8 billion and $5.9 billion, citing a pullback in consumer discretionary spending, echoing similar comments from rivals Activision Blizzard  (ATVI) – Get Activision Blizzard Inc Report and Electronic Arts  (EA) – Get Electronic Arts Inc. Report.

Nvidia CEO Jensen Huang, struck a bullish tone on the sector when he spoke with analysts last night.

“The fundamentals of gaming are strong, and this medium is really doing well,” he said. “Our Gaming PCs are being used for influencers, people sharing content, creating content, vloggers, VTubers, there’s all kinds of new ways of engaging and spending time with video games.”

“Our strategy is to reduce the sell-in, reduce the sell-in this quarter or next quarter, to let channel inventory correct,” he added. 

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