Shares of Nvidia (NVDA 5.22%) were up 1.5% as of 7:04 p.m. ET in after-hours trading on Wednesday, following the graphics-chip specialist's release of its third-quarter report for fiscal 2023.

The market's relatively muted initial reaction isn't surprising since both the third-quarter results and fourth-quarter guidance were "mixed," in Wall Street lingo. Third-quarter revenue exceeded the analyst consensus estimate, while the quarter's profit missed the estimate. The fourth-quarter guidance scenario was the opposite, with the top-line outlook coming in lower than the Street had expected, while the bottom-line forecast slightly surpassed the expectation.

None of the beats or misses, however, were that sizable. Given the challenging macroeconomic environment, most investors were probably satisfied with the report. 

Nvidia's key numbers

Metric Fiscal Q3 2022 Fiscal Q3 2023 Change (Decline)
Revenue $7.10 billion  $5.93 billion (17%)
GAAP operating income $2.67 billion $601 million (77%)
GAAP net income $2.46 billion $680 million (72%)
Adjusted net income $2.97 billion $1.46 billion (51%)
GAAP earnings per share (EPS) $0.97 $0.27 (72%)
Adjusted EPS $1.17 $0.58 (50%)

Data source: Nvidia. GAAP = generally accepted accounting principles. Fiscal Q3 2023 ended on Oct. 30, 2022.

Investors should focus on the adjusted numbers, as they strip out one-time items.

Wall Street was looking for adjusted EPS of $0.69 on revenue of $5.77 billion, so Nvidia beat the top-line estimate, but missed the profit expectation. 

For context, in the fiscal second quarter, the company's revenue edged up 3% year over year to $6.70, and its adjusted EPS declined 51% to $0.51.

Platform performance

Platform Fiscal Q3 2023 Revenue Change YOY Change QOQ
Data center $3.83 billion 31% 1%
Gaming $1.57 billion (51%) (23%)
Professional visualization $200 million (65%) (60%)
Automotive $251 million 86% 14%
OEM and other $73 million (69%) (48%)
Total $5.93 billion (17%) (12%)

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 commentary, chief financial officer Colette Kress said the data center platform's strong year-over-year growth was driven by higher product demand from U.S. cloud service providers, consumer internet companies, and other vertical industries.

As many investors likely expected, the data center's sequential growth was hurt by the U.S. government's late August announcement of new restrictions on exports to China on certain of Nvidia's chips and systems for data centers. The company was able to largely offset the revenue hit from these restrictions, however, by selling alternative products into China.

Kress attributed the gaming platform's year-over-year and sequential revenue declines to "lower sell-in to partners to help align channel inventory levels with current demand expectations as macroeconomic conditions and COVID lockdowns in China continue to weigh on consumer demand."

Professional visualization was also hurt by weaker demand stemming from the macro environment.

Auto was the quarter's growth champ, thanks primarily to higher demand for the company's self-driving technology.

Fourth-quarter guidance 

For the fiscal fourth quarter, management expects revenue of $6 billion, representing a decline of 21% year over year. It also guided (albeit indirectly, by providing a bunch of inputs) for adjusted EPS of $0.78, a drop of 41%. 

Going into the report, Wall Street had been modeling for fourth-quarter adjusted EPS of $0.76 on revenue of $6.09 billion, so the company's outlook fell short of the top-line expectation but came in higher than the bottom-line estimate. 

Long-term growth prospects remain robust 

Nvidia's third-quarter report didn't have any major surprises. Certainly, it wasn't the kind of quarterly report that investors had been used to seeing before recently. But the macro environment has worsened over the last year, and this holds particularly true for semiconductor makers. Macro challenges, however, won't last forever.

As I wrote last quarter, Nvidia "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."