Nvidia Corp. (NVDA) shares edged lower Wednesday ahead of its closely-watched second quarter earnings after the closing bell, with investors focused on the chipmaker's gaming sector outlook following a negative pre-announcement earlier this month.
Analysts expect the group to post earnings of $1.25 per share, a 20% jump from the same period last year, on revenues of around $6.7 billion, the bulk of which -- $3.81 billion -- is likely to come from its data center division.
Nvidia, which also makes chips for the gaming and cryptocurrency mining industries, cautioned earlier this month that the heretofore 'recession proof' video game sector weakness would likely bring a 44% decline in revenues for the division, with a second quarter tally of $2.04 billion.
Take-Two Interactive (TTWO), which makes the popular 'Grand Theft Auto' video game franchise, clipped its full-year revenue forecast in mid-August amid emerging weakness in the sector. Take-Two said full-year revenues would likely come in between $5.8 billion and $5.9 billion, citing a pullback in consumer discretionary spending, echoing similar comments from rivals Activision Blizzard (ATVI) and Electronic Arts (EA).
“Our gaming product sell-through projections declined significantly as the quarter progressed,” CEO Jensen Huang told investors on August 8. “As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our Gaming partners to adjust channel prices and inventory.
Nvidia shares were marked 0.85% lower in early Wednesday trading to change hands at $170.53 each, a move that would extend the stock's year-to-date decline to around 41.1%.
KeyBanc Capital Markets analyst John Vinh thinks Nvidia's near-term guidance will reflect both a trough in the gaming sector as well as strength in data center demand, leading to a resumption in quarter-on-quarter revenue growth.
"We believe Nvidia has been able to repurpose gaming GPUs to ease supply constraints and higher backlog in data center and auto," said Vinh, who carries an "overweight' rating with a $230 price target on the stock.
"Given weak gaming demand, supply chain feedback indicates that Nvidia has been able to repurpose its high-end gaming GPUs to better support cumulative backlogs in data center and auto, where Nvidia has remained supply constrained," he added.
