Morningstar | NVDA Updated Forecasts and Estimates from 28 Jan 2019
On Jan. 28, Nvidia lowered its revenue guidance for the fiscal fourth quarter to $2.2 billion from $2.7 billion primarily due to gaming and data center weakness, causing shares to fall 15%. We note the cryptocurrency-related headwinds in gaming had already caused the firm’s fourth-quarter guidance to be significantly lower than expectations when the firm reported third-quarter results in November. In a letter to shareholders, CEO Jensen Huang also blamed 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. Meanwhile, cloud customer demand for GPUs in the artificial intelligence arena has also decelerated due to broader economic uncertainties, echoing similar sentiments by Intel when it reported earnings last week and walked through its reasoning for near-term data center/cloud weakness. We are maintaining our $120 fair value estimate for narrow-moat Nvidia as we believe the firm still boasts a competitive advantage in both gaming and data center GPUs, and these issues seem more transitory in nature than structural. That said, we’d recommend prospective investors seek a wider margin of safety before committing capital to this GPU titan.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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