Nvidia: Do Analysts See Train Wreck or Fender Bender?

When Nvidia Corp. (NASDAQ: NVDA) reported second-quarter results late Wednesday, investors promptly took the stock to the woodshed, cutting as much as 6% from the share price in after-hours trading. At the opening bell Thursday, shares traded down by about 1%.

The company had warned earlier that revenue and profits would be lower for the quarter, so that was no surprise. What had investors worried was the company’s outlook for the current quarter. Nvidia has forecast revenue of $5.9 billion, less than a consensus estimate of $6.9 billion.

Gaming chip sales were lower, as expected. Sales of Nvidia’s graphics processors, which are heavily used in the crypto-mining business, also have been slow. They may get slower once Ethereum completes its transition to a proof-of-stake model rather than the proof-of-work model it and Bitcoin currently use.  The new model uses a small fraction of the electricity needed for crypto mining.

The big worry is the company’s data center business. Data center sales hit a record level in the second quarter but were still short of projections. Nvidia could have sold more but supplies of supporting chips were constrained. CEO Jensen Huang said it will take time to sort out the supply chain challenges. About 70% of Nvidia’s second-quarter revenue was down to data center sales.

A half dozen brokerages have weighed in on Nvidia’s results. Most reiterated their previous ratings but lowered price targets. Here is a sample of what each had to say.

Cowen reiterated its Buy rating on the stock and its $200 price target. The firm said that clearing out its inventory of gaming and crypto-mining chips was “painful but necessary and welcome.” Cowen’s analyst fears that Nvidia’s stock price may be range-bound in the near term.

Benchmark Capital maintained its Buy rating but lowered its $228 price target to $215. Analyst Cody Acree wrote in a research note that the aggressive inventory clearance in the current quarter is “likely” to drive the stock to its near-term bottom.

Citigroup analyst Atif Malik reaffirmed a Buy rating but lowered the stock’s $285 price target to $248. Malik expects sequential growth in gaming sales to resume in the January quarter once the inventory overhang is cleared. Much depends on continued growth in Nvidia’s data center business, while a “major auto [industry] inflection next year” offers another opportunity.

Fubon cut its rating on the stock from Buy to Neutral and has a price target of $180. The Taipei-based firm also has banking operations in Hong Kong and China. No further comments are available.

Mizuho kept a Buy rating on the stock, but it cut the $250 price target to $225. A new gaming chip set to debut next year adds to what analyst Vijay Rakesh sees as a buying opportunity because he expects both sales and margins to improve next year.

Wedbush maintained its Neutral rating on the sock and cut its $190 price target to $160. Analyst Matt Bryson thinks the company has signaled that the current quarter will be the year’s low point. Slower spending in China is a new challenge, and demand for data center chips could be hampered by the tougher macro environment. Bryson is less sanguine than some other analysts on the prospects for Nvidia’s new superchips.

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In the early afternoon Thursday, Nvidia stock traded at around $176.30, up about 2.3% for the day, in a 52-week range of $140.55 to $346.47.

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