Nvidia Profit Seen Down Amid Crypto Crash, Tech Cuts

Key Takeaways

  • Nvidia is expected to post adjusted earnings of 71 cents per share for Q3 late on Nov. 16.
  • Revenue is seen dropping 18% year-over-year amid reduced demand from cryptocurrency miners.
  • Ethereum’s shift to proof-of-stake from proof-of-work in September undercut demand for mining GPUs, or graphics processing units.
  • Nvidia’s data-center sales disappointed in Q2 but remain a key driver of growth for the chips developer.
  • New U.S. export restrictions on sales to China could cost Nvidia $400 million in annual revenue.

Nvidia Corp. (NVDA) heads into its quarterly earnings report Nov. 16 after market close with demand for its computing chips hurt by economic slowdowns in Europe and China and a slump in cryptocurrencies.

Nvidia’s share price is down 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 chip sales for data centers, expected to have doubled in two years amid rapid adoption of ecommerce and cloud-based applications. That segment’s performance will be important to the company’s results for the quarter through October, expected to show that it earned 71 cents a share on an adjusted basis, compared with $1.17 in the year-earlier period, based on analysts’ consensus forecast.

Another key to the company’s results is how much demand for Nvidia’s processors has been hurt by the recent collapse in cryptocurrency prices and, even more crucially, Ethereum’s September shift to a proof-of-stake method for blockchain validation from “mining,” or computerized math problem-solving. As of May, Ethereum accounted for 97% of mining revenue generated by graphics processing units (GPUs) like Nvidia’s, by one estimate.

Nvidia says it can’t estimate the contribution of cryptocurrency mining to the demand for its processors, though the company’s chief financial officer acknowledged that it fell in the quarter ended July 31. On the same conference call, Nvidia’s chief executive officer said cryptocurrency mining demand has propped up pricing for its products. An analyst at Robert W. Baird & Co. has estimated crypto miners accounted for as much as 35% of the demand for graphics processing units at their peak. In a sign crypto demand has continued to weaken, Nvidia reportedly released an update for one of its graphics processors without the hash-rate limits it previously used to make its products less appealing to miners.

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

While data-center growth has been resilient to economic headwinds in recent quarters, analysts will be on the lookout for any softening in the wake of recent cost-cutting by some of the largest tech companies, which are Nvidia’s customers. Amazon Web Services, a leading operator of data centers, posted the slowest growth rate in eight years for its most recent quarter at 27.5%, and Amazon (AMZN) subsequently confirmed it has frozen hiring, while reportedly planning to lay off about 10,000 workers.

Meta Platforms (META), the owner of Facebook and Instagram, recently announced layoffs of more than 11,000 employees, though its aggressive data-center investment plans remain a positive for Nvidia.

Source: TradingView.

Source: TradingView

Nvidia Earnings History

The company’s Q2 fiscal 2023 results missed analysts’ estimates, even though Nvidia pre-announced the disappointing numbers two weeks earlier. Earnings were hurt by a $1.34 billion charge, mostly discounting inventory amid diminished demand expectations. Gaming segment revenue plunged 44% sequentially in the second quarter, amounting to little more than half of sales for data centers.

In that report, Nvidia projected third-quarter revenue of $5.9 billion give or take 2%, with gaming revenue including crypto expected to decline further, while data-center revenue was seen rising sequentially from the second quarter. The stock reversed an after-hours decline to gain 4% the next day, though it’s lost more ground since.

The company’s Q1 fiscal 2023 results, reported in May, topped estimates. The share price rose 5.2% the next day.

Nvidia Key Stats

  Estimate for
Q3 FY 2023
Q3 FY 2022 Q3 FY 2021
Adjusted Earnings
Per Share ($)
0.71 1.17 0.73
Revenue ($B) 5.8 7.1 4.7
Data Center Revenue ($B) 3.8 2.9 1.9

Sources: Visible Alpha, Nvidia, and news reports

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 counts predominantly on enterprise customers, while the end markets for its gaming processors depend significantly on gamers and other retail buyers.

The processors for data centers are designed to speed up computing for the most intensive workloads—including AI, data analytics, graphics, and scientific computing—across hyperscale, cloud, enterprise, public sector, and edge data centers. Products include energy-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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