'Crypto strikes again': Here's what Wall Street is saying about Nvidia's underwhelming earnings

Nvidia on YouTubeNvidia CEO Jensen Huang

Nvidia on Thursday reported disappointing third-quarter earnings, leading shares to slump as much as 18% early Friday.

The chipmaker said it earned $US1.82 a share, falling short of the $US1.92 that was expected by Wall Street according to Bloomberg data. Its bottom line came in at $US3.18 billion, missing on the $US3.24 billion that was expected.

Looking ahead, the company expects its fourth-quarter revenue to be $US2.7 billion, while analysts were expecting $US3.4 billion.

The underwhelming financial results were largely due to an excess of mining GPUs for cryptocurrency. “Our near-term results reflect excess channel inventory post the crypto-currency boom, which will be corrected,” CEO Jensen Huang said Thursday in the earnings release. Management in August warned that it’s expecting “essentially no cryptocurrency” business moving forward.

Also at stake is a product transition which will unlikely ramp until next year.

In August Nvidia unveiled its new graphics cards, which improve the gaming experience through features like real-time ray tracing. But those new features aren’t yet available because games supporting the high-end graphics cards aren’t out until 2019.

But nearly every Wall Street analyst is still bullish about the chip giant, saying it’s time to buy the dip as the company has good fundamentals.

Here is what they are saying:


Goldman Sachs — ‘Structural thesis unchanged but remove from Conviction List on increased near-term uncertainty’

NVIDIA

Price target: $US200

Rating: Buy

“Structural thesis unchanged but remove from Conviction List on increased near-term uncertainty,” said analyst Toshiya Hari at Goldman Sachs.

“While we view the inventory correction in Gaming as a one-time reset as opposed to a change in the long-term growth profile, we believe it could take a few quarters before the market regains confidence in the growth trajectory of the business, especially given the weak economic backdrop.”


RBC Capital Markets — ‘Crypto strikes again along with data center softness’

Nvidia

Price target: $US260 (from $US310)

Rating: Outperform

“Crypto strikes again along with data center softness,” said Mitch Steves, an analyst at RBC Capital Markets.

“Nvidia reported results and guidance below expectations due to 1) gaming inventory – crypto currency chips being returned, 2) data center coming in lighter than expected at $US792M (Street $US820M) and 3) guided gaming down ~30% q/q for gaming. Overall, while this is a material set-back for the stock we note that the long-term secular trends remain the same: Data Center – AI, Autonomous in 2020 and VR ramps in 2020 and beyond. Going forward, we think the focus will now shift to Data Center as gaming expectations are now reset due to crypto currencies and a product transition (Turing) which will unlikely ramp until around the Jul-qtr time frame.”


Jefferies — ‘Crypto reset — still a top secular growth’

Price target: $US246 (from $US320)

Rating: Buy

“Crypto reset – still a top secular growth story,” said Jefferies analyst Mark Lipacis.

“October quarter missed, but the January quarter Revenue/EPS outlook is 21%/36% below consensus due to high crypto GPUs in the channel. We forecast JanQ gaming GPU revs decline by 35% QQ as NVDA clears channel inventories. We lower our ests and price target, but model gaming revs resume QQ growth in the JulQ. The JanQ reset is a setback, but we continue to view NVDA as a top play on secular themes in AI, Gaming and A/V.”


Suntrust Robinson Humphrey — ‘Buy the dip’

Price target: $US237 (from $US316)

Rating: Buy

“Long-term thesis seems intact; Buy the dip,” said William Stein, an analyst at Suntrust Robinson Humphrey.

“The surprisingly weak Q4 guide appears temporary. NVDA guided Q4 ~20% below consensus revs as the company halts ~1/3 of gaming segment sales to flush channel inventory built during the crypto enthusiasm in 1H18. This badly damages near-term revenue and profits, but Datacenter, Pro-Viz, and Automotive results support our structural growth view.”


SEE ALSO:

Nvidia is getting smoked after missing on revenue and profits

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