Nvidia (NVDA 3.71%) stock dropped 4.6% in after-hours trading on Wednesday, following the graphics chip specialist's release of a second-quarter report for fiscal 2023 that disappointed investors.
Investors were already braced for an anemic report because earlier this month the giant tech company released preliminary Q2 results. In that report, management warned that revenue would be about $6.7 billion, or much lower than the guidance of $8.1 billion it had provided in May. It also indicated (albeit indirectly, by providing a bunch of inputs) that adjusted earnings per share would come in at about $0.51, or far short of its outlook of $1.27 issued in May.
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Nvidia's key numbers
| Metric | Fiscal Q2 2023 | Fiscal Q2 2022 | Change |
|---|---|---|---|
| Revenue | $6.70 billion | $6.51 billion | 3% |
| GAAP operating income | $499 million | $2.44 billion | (80%) |
| GAAP net income | $656 million | $2.37 billion | (72%) |
| Adjusted net income | $1.29 billion | $2.62 billion | (51%) |
| GAAP earnings per share (EPS) | $0.26 | $0.94 | (72%) |
| Adjusted EPS | $0.51 | $1.04 | (51%) |
Data source: Nvidia. GAAP = generally accepted accounting principles. Fiscal Q2 2023 ended on July 31, 2022.
Investors should focus on the adjusted numbers, as they exclude one-time items.
Platform performance
| Platform | Fiscal Q2 2023 Revenue | Change (YOY) | Change (QOQ) |
|---|---|---|---|
| Data center | $3.81 billion | 61% | 1% |
| Gaming | $2.04 billion | (33%) | (44%) |
| Professional visualization | $496 million | (4%) | (20%) |
| Automotive | $220 million | 45% | 59% |
| OEM and Other | $140 million | (66%) | (11%) |
| Total | $6.70 billion | 3% | (19%) |
Data source: Nvidia. OEM = original equipment manufacturers; OEM and other is not a target market platform. YOY = year over year. QOQ = quarter over quarter.
In her CFO commentary, Colette Kress said the gaming platform's revenue performance was hurt by "reduced channel partner sales due to macroeconomic headwinds" and lower product prices. The company reduced product prices because it expects challenging market conditions for gaming products to continue into the third quarter.
While the data center platform performed well, Kress noted that its revenue fell somewhat short of management's expectations because of supply chain disruptions.
She attributed the OEM and other category's year-over year revenue decline to lower sales of the company's cryptocurrency mining processor (CMP), and its sequential decline to lower notebook OEM sales. The results in this category have been volatile because of the volatility of the cryptocurrency market.
Third-quarter guidance was lighter than expected
For the fiscal third quarter, management expects revenue of $5.9 billion, representing a decline of 17% year over year. It also guided (albeit indirectly, by providing a bunch of inputs) for adjusted EPS of $0.72, a drop of 38%.
Going into the report, Wall Street had been modeling for Q3 adjusted EPS of $0.85 on revenue of $6.95 billion, so the company's outlook fell short on both counts.
In the earnings release, the company said that its Q3 gaming and professional visualization revenue "are expected to decline sequentially, as OEMs and channel partners reduce inventory levels to align with current levels of demand and prepare for NVIDIA's new product generation." The good news is that it expects these declines to be partially offset by sequential growth in its data center and auto platforms.
Focus on the long term
In short, Nvidia's overall results for the second quarter were disappointing. But one quarter is just one quarter (and even one year is just one year). This is a company that has massive long-term growth potential, as it's a leader in many high-growth areas, including cloud computing, artificial intelligence (AI), gaming, and autonomous vehicles. Moreover, its Omniverse platform gives it the potential to be a leader in the nascent metaverse, which could explode in size over time.
