Morningstar | NVDA Updated Forecasts and Estimates from 28 Feb 2019
Nvidia reported fourth-quarter results consistent with the lowered guidance it gave Jan. 28. Excess GPU channel inventories related to the fallout of cryptocurrency-mining GPU demand had already caused fourth-quarter guidance to be significantly lower than expectations when the firm reported third-quarter results in November. Nvidia was also plagued by weaker economic conditions in China and consumers delaying their purchase of the high-end RTX GPUs while waiting for lower price points and more games that can actually utilize ray-tracing and other features enabled by the RTX platform. Nvidia alleviated the price point issue with the recent launch of the RTX 2060 ($349), while popular PC games Battlefield V and Metro Exodus will now be able to take advantage of the key features of Nvidia’s Turing architecture. Cloud demand for GPUs has also decelerated because of broader economic uncertainties. On the basis of these assorted headwinds, fiscal 2020 revenue is expected to be flat to slightly down. We are maintaining our $120 fair value estimate for narrow-moat Nvidia and would recommend seeking a wider margin of safety before committing capital to this GPU titan.Fourth-quarter sales declined 24% year over year and 31% sequentially to $2.2 billion. Gaming sales fell 46% sequentially to $954 million, primarily due to the aforementioned inventory issues. CFO Colette Kress noted the firm’s normalized quarterly gaming revenue run rate is about $1.4 billion and the first quarter will be the bottom, which implies full-year gaming sales being down at least modestly. Data center revenue was $679 million, down 14% sequentially, and we anticipate near-term challenges in this segment. GAAP gross margins were 54.7% for the quarter, down 570 basis points sequentially due to lower GPU volume and write-downs for components such as DRAM.
For fiscal 2019, the firm enjoyed 21% top-line growth despite the weaker fourth quarter, with solid growth across gaming, data center, automotive, and professional visualization. Management expects first-quarter revenue to be flat sequentially at $2.2 billion.
For further insight into our views on the AI and AD prospects for chipmakers, please see our Technology Observers "Accelerator: Rise of the Machine (and Deep) Learning Phenomenon" and "Automotive Chipmakers in the Fast Lane--Destination: High-Speed Growth."
NVIDIA engages in graphics processing unit (GPU)-based visual computing and accelerated computing platforms. The company has two segments, GPU and Tegra Processor, which are based on a single underlying architecture. The company's GPU product brands are aimed at markets including GeForce for gamers; Quadro for designers; Tesla and DGX for artificial intelligence data scientists and big data researchers; and GRID for cloud-based visual computing users. The company's Tegra brand integrates an entire computer onto a single chip, and incorporates GPUs and multi-core CPUs to drive supercomputing for autonomous robots, drones, and cars, as well as for game consoles and mobile gaming and entertainment devices.
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