Nvidia earnings preview: Data center takes center stage as gaming slumps

Nvidia Corp. (NVDA) – Get a free report Shares tumbled Wednesday ahead of the chipmaker’s third-quarter earnings after the closing bell, with investors likely focused on whether the strength of its data center business can offset lingering industry weakness. Game.

Analysts expect Nvidia to post adjusted net earnings of 69 per share for the three months ending October, down 41% from the same period last year. Revenue is expected to fall about 20% to $5.77 billion, in part due to weak demand for gaming and AI-related chips as well as restrictions on high-tech exports to China. .

Nvidia itself forecast 2022 revenue of around $5.9 billion, plus or minus 2%, earlier this summer, adding that gross margins would improve significantly from the second quarter and reach around 65%, plus or less 2%.

Those predictions could improve, however, following the announcement earlier this month that Nvidia had developed a new semiconductor – an advanced A800 graphics processing unit (GPU) – that it can sell to customers in China. without violating new US export restrictions. China typically accounts for around 25% of Nvidia’s quarterly revenue.

The modified chips will replace the more sophisticated A100, which is currently on the US government’s list of technologies banned from sale in China. Nvidia will also delay the launch of its new H100 chip, which was expected later this year, as it moves some of its carriers out of China following the US government order.

A better-than-expected earnings report earlier this month from Advanced Micro Devices (AMD) – Get a free reporta rival in the data center space, could also suggest firming demand in Nvidia’s largest division, which generated $3.81 billion in sales last quarter.

AMD said Nov. 2 that it sees quarterly revenue in the region of $5.5 billion, plus or minus $300 million, with gross margins reaching around 51% on sequential growth in its embedded and data center units. Refinitv estimates were looking for a revenue forecast of around $5.85 billion.

For the third quarter, however, data center revenue is expected to rise 29% from a year ago to $3.79 billion, while sales in its professional visualization group could fall 38% to $355 million. Automotive chip sales could rise 80% to $243 million.

Gaming, however, is expected to remain weak, with forecasts suggesting a drop in revenue of around 55% to $1.4 billion as Nivida cuts customer sales in a bid to correct a build-up in gaming. channel inventory while reducing the prices of existing products. ahead of the launch of next-generation GPUs in the coming year.

Interactive Take-Two (TWO) – Get a free reportthe maker of Grand Theft Auto and NBA 2K23, reported weaker-than-expected second-quarter results earlier this month and issued an upbeat outlook for the holiday season amid weakness in its mobile segment.

ActivisionBlizzard (ATVI) – Get a free reportthe Call of Duty maker that will be bought by Microsoft (MSFT) – Get a free report later next year, said fourth-quarter revenue would likely fall 6% to $2.02 billion, with net bookings rising 11.6% to $2.78 billion.

AMD has also seen price changes reduce its revenue in the gaming sector, with operating result down 38.5% from a year ago to $142 million in the September quarter, even as revenue rose 14% to $1.6 billion. CEO Lisa Su said growth would be “flat” in the coming fiscal year, but noted there was “still pent-up demand, especially heading into this holiday season” that could help stimulate the sector.

Nvidia shares were marked down 1.15% in premarket trading to point to an opening price of $164.75 each.

The move would peg the stock’s year-to-date decline at around 45%, compared with a 28.7% drop for the Philadelphia Semiconductor sub-index and a 27.4% drop for the benchmark Nasdaq Composite index. .