graphics chip manufacturer nvidia (NVDA) earlier Monday cut its revenue outlook for its fiscal second quarter due to weak gaming chip sales. Nvidia shares fell on the news.
The Santa Clara, California-based company announced preliminary sales of $6.7 billion for the quarter ended July 31. It had previously forecast sales of $8.1 billion for the period. It will announce the official results on August 24.
Gaming revenue was $2.04 billion, down 33% from the prior year. Data center revenue was $3.81 billion, up 61% from the prior year. Total sales were up 3% from the same quarter last year, Nvidia said in a Press release.
Lower revenue from gaming products reflected reduced sales from channel partners likely due to macroeconomic headwinds, Nvidia said. In response to challenging market conditions, Nvidia has implemented pricing changes with its sales channel partners.
Data center revenue, while a record, fell short of company expectations as it was hit by supply chain disruptions, Nvidia said.
Nvidia stock plunges on the news
About him stock market todayNvidia shares fell 6.3% to close at 177.93.
“Our projections for direct sales of gaming products decreased significantly as the quarter progressed,” CEO Jensen Huang said in the statement. “As we expect macroeconomic conditions affecting direct sales to continue, we have taken steps with our gaming partners to adjust channel pricing and inventory.”
Second quarter results will include about $1.32 billion in charges, primarily for inventory and related expenses, based on revised expectations of future demand.
“The significant charges incurred in the quarter reflect long-term purchase commitments we made during a time of severe component shortages and our current expectation of macroeconomic uncertainty,” Chief Financial Officer Colette Kress said in a written statement.
Maintenance of gross profit margins
He added: “We believe our long-term gross margin profile is intact. We have slowed operating expense growth, balancing investments for long-term growth while managing short-term profitability. We plan to continue share buybacks since that we anticipate strong cash generation and future growth.”
Nvidia’s sales estimates suggest earnings per share will be 51 cents, versus a consensus target of $1.25 for the fiscal second quarter.
“This was an ugly negative preliminary announcement,” BMO Capital Markets analyst Ambrish Srivastava said in a note to clients. “As bad as the shortfall is, this may serve as an ‘offset’ event for equities, given that investors widely anticipated the loss on the side of the game.”
Srivastava reiterated his outperforming rating on Nvidia stock with a price target of 250.
Nvidia stock gets price target cuts
At least five Wall Street firms lowered their price targets on Nvidia shares after the company’s announcement.
Rival graphics chip manufacturer advanced micro devices (amd) also fell into the news. AMD shares fell 2.2% to 100.07 on Monday.
The IBD Composite Rating is a combination of fundamental metrics and key techniques to help investors assess a stock’s strengths. The best growth stocks have a composite rating of 90 or better.
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