Highlights:

• The company’s second-quarter net income was only USD 656 million, a significant decrease from the USD 2.37 billion profit it generated during the same period one year prior.
• Nvidia has been severely impacted by the decline in sales of personal computers, which has been followed by a two-year pandemic-driven spike.

The shares of Nvidia Corp suffered another fall when the business issued a revenue projection for the upcoming quarter that fell short of analysts’ expectations.

This warning was issued after the corporation revealed a substantial decline in revenue and profit for the preceding quarter.

The company’s second-quarter net income was only USD 656 million, a significant decrease from the USD 2.37 billion profit it generated during the same period a year ago. Earnings before certain expenses such as stock compensation amounted to 51 cents per share, while sales increased from USD 6.51 billion to USD 6.7 billion. Analysts predicted USD 1.26 per share earnings on sales of USD 8.10 billion. However, the actual results fell far short.

This isn’t surprising, as in its interim earnings report, Nvidia had warned earlier in the month that it was likely to fall short by a significant margin. The business informed investors that decreased gaming revenues would result in a revenue deficit of USD 1.4 billion. It also warned that COVID-19-related lockdowns in China and the crisis in Ukraine would reduce its financial sheet by an additional USD 500 million.

Nvidia has been severely impacted by the decline in sales of personal computers, which has been followed by a two-year pandemic-driven spike. Spending on video games and technology has dropped significantly as people return to outdoor activities. Concurrently, Nvidia has suffered due to a precipitous decline in cryptocurrency values, making “mining” less lucrative. The graphics processing units of the corporation are utilized extensively for this purpose.

It is not all bad news for Nvidia. The company’s quarterly sales of data center chips increased by 61% to USD 3.81 billion. The issue was that gaming sales dropped by 33% to USD 2.04 billion.

Colette Kress, Nvidia’s Chief Financial Officer, said that the decline in gaming sales was “sharper than anticipated,” driven by lower unit sales and average selling prices. She added that macroeconomic headwinds resulted in a “sudden slowdown” in demand for gaming hardware. “As noted last quarter, we had expected cryptocurrency mining to make a diminishing contribution to gaming demand, and we cannot accurately quantify how reduced crypto mining contributed to the decline in gaming demand,” said Kress.

The business of professional visualization also faltered. The unit’s revenues decreased by 4% to USD 496 million. It supplies graphics processors for corporate use cases. On the other hand, automotive chip sales increased by 45% compared to the previous year. With about USD 220 million in revenue, this business remains extremely small.

For the third quarter, Nvidia forecasts sales between USD 5.78 billion and USD6.02 billion, which is well below expert projections. Wall Street had previously predicted sales of USD 6.91 billion. In the extended trading session that followed the report’s release, Nvidia’s shares declined by more than 4%, remaining unchanged during the day.

Patrick Moorhead, an analyst with Moor Insights & Strategy, said, “The stock drop was odd because the revenue miss and profit drop should have already been factored in, given the warning three weeks ago. I think Wall Street didn’t like the answers on the call related to when gaming will rebound. Gaming is complex as there are many moving parts, with COVID, limited new AAA titles, the crypto crash, product transitions, and the economy.”

Charles King of Pund-IT Inc. said, “Nvidia is a good if somewhat painful example of what happens to vendors when their key markets falter and when broader economic pressures also come into play.”

Charles King further said, “Nvidia’s main problem spots are in crypto mining, where cryptocurrencies have failed to regain momentum after their recent collapse, and gaming systems, where slowing sales reflect consumers’ concerns about inflation and economic uncertainties. While there are no easy fixes for this, Nvidia’s leadership team has faced and worked through previous challenges. I expect they will navigate successfully through these current storms.”

Kress stated that the business anticipates sequential gaming and professional virtualization revenue to decline in the third quarter. Meanwhile, she expects Nvidia’s customers and channel partners to cut their inventory levels to correspond with current demand levels and prepare for the company’s next generation of products.

The projection indicates that, for the first time since 2014, Nvidia is expected to announce quarterly sales lower than competitor chipmaker Advanced Micro Devices Inc. Earlier last month, AMD projected third-quarter sales between USD 6.5 billion and USD 6.9 billion.

Jensen Huang, Nvidia founder and Chief Executive, said, “We reduced selling to let channel inventory correct, and we’ve implemented programs with our partners to position the products in the channel in preparation for our next generation. All of this, we anticipate we’re working towards a path to being in good shape going into next year. So that’s what our game plan is.”

Holger Mueller, an analyst at Constellation Research Inc., stated that the precipitous decline of once high-flying and fast-growing Nvidia demonstrates that the post-pandemic resurgence poses problems for all technology firms. “Nvidia’s diversification into the data center space saved it this quarter, making up for the gaming shortfall with very healthy growth among enterprises,” Mueller said. “The question is, where will the growth come from in the next quarters, and will Nvidia be able to reignite its gaming sales?”