Shares of NVIDIA Corporation NVDA declined 18.78% to close at $164.43 on Nov 16. Moreover, during the trading session, shares slipped to a 52-week low of $161.61.
The chip-making giant’s disappointing outlook for the fiscal fourth quarter and an unimpressive third-quarter fiscal performance are the reasons behind this downside. Notably, an amount of nearly $25 billion of its market capitalization was wiped away following the announcement of its quarterly results. The company’s market cap closed below $100 billion at $99.97 billion in the last trading session.
Additionally, NVIDIA stock has lost 15% in the year-to-date period, much wider than the industry’s 4.1% decline.
Why the Downturn?
NVIDIA recently reported dismal third-quarter fiscal 2019 results wherein both the top and the bottom-line results fell short of expectations. Weakness in the Gaming segment, affected by an excess inventory of midrange Pascal products, impacted the company’s results.
Inventory level of midrange Pascal gaming cards remained higher-than-expected as demand from gamers failed to grow rapidly to offset the soft cryptocurrency-related requirement. Consequently, shipment was badly hurt as the price of graphic cards was still elevated.
On the earnings call, management mentioned that it will take two quarters to normalize the channel inventory. The company’s guidance for the fiscal fourth quarter indicates its suspension of mid-range Pascal GPU shipments in order to normalize the channel-inventory levels.
Moreover, due to the normal seasonal build cycle, the company anticipates lower sales of Tegra chips for game consoles to be an overhang on its gaming revenues.
NVIDIA Corporation Price and Consensus
NVIDIA Corporation Price and Consensus | NVIDIA Corporation Quote
Is There a Silver Lining?
Despite the headwinds, NVIDIA’s sustained efforts toward attaining a robust position in several emerging industries raise hopes of revival. Growth opportunities in ray-traced gaming, rendering, high-performance computing, artificial intelligence (AI) and self-driving cars are expected to be the company’s consistent tailwinds.
NVIDIA recently introduced an open-source GPU-acceleration platform for data science and machine learning called RAPIDS. It has already received a broad adoption from leading players, namely Oracle ORCL, Microsoft MSFT Azure, Alphabet’s Google GOOGL, Hewlett Packard Enterprise, IBM and SAP.
Moreover, NVIDIA RTX Server, launched in the fiscal third quarter and designed forphoto-real rendering in the datacenter, opens a new market for GPUs. Notably, it has been adopted by key developers such as Adobe, ANSYS, Autodesk and Dassault among others.
Additionally, the launch of NVIDIA TensorRT Hyperscale Platform is likely to boost the deployment of its inference platform at scale in hyperscale datacenters.
Management is optimistic about expanding its addressable market with Turing and the recently unveiled software offerings. Notably, Turing T4 cloud GPU received the quickest adoption of any server GPU and is available on Google Cloud Platform.
Furthermore, the company began shipping its first gaming GPUs — GeForce RTX series — based on Turing architecture. Management believes that RTX is well-poised to establish itself “as a game-changing architecture”, given the pipeline of upcoming games supporting the ray-tracing feature.
NVIDIA currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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