"And so it was that, on the day before Independence Day, NVIDIA (NASDAQ:NVDA) investors declared their independence from any chance of profiting on their stock this year."

Was I right or was I wrong when I penned these words last month, just days after NVIDIA's explosive news of a double-digit sales shortfall combined with a nine-figure earnings writedown? We'll find out tomorrow, when this Motley Fool Stock Advisor recommendation files its fiscal Q2 2009 report after close of trading.

What analysts say:

  • Buy, sell, or waffle? Twenty-seven analysts give NVIDIA 15 buy ratings and a dozen holds.
  • Revenue. They expect to see sales slip 3% to $908 million.
  • Earnings. Profits are predicted to plummet 65% to $0.12 per share.

What management says:
In case you missed the news that torpedoed NVIDIA last month, here's a rundown: NVIDIA is taking a $150 million to $200 million charge "to cover anticipated customer warranty ... and other ... costs ... arising from a weak die/packaging material set in certain ... MCP and GPU products used in notebook systems." This charge will exacerbate gross margin and sales weakness blamed on "end-market weakness," "delayed ramp of a next generation MCP," and price competition. NVIDIA's latest Q2 sales estimates bracket analysts' estimates, ranging from $875 million to $950 million.

What management does:
All of which adds up to the inescapable conclusion: Tomorrow's news is going to be a big change from what we've come to expect from NVIDIA. Quarter after quarter, the company had been widening its margins, until last quarter, when they slipped only a little. Tomorrow, they could slip a lot.

Margins

1/07

4/07

7/07

10/07

1/08

4/08

Gross

42.4%

43.1%

43.8%

45.2%

45.6%

45.5%

Operating

14.8%

15.3%

16.7%

18.9%

20.4%

20.4%

Net

14.6%

15.1%

16.5%

18.7%

19.5%

19.1%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Yet even if things turn out as badly as feared, make sure to view the news in context. NVIDIA remains profitable even as archrival AMD (NYSE:AMD) is not. It lags Intel (NASDAQ:INTC) by only a few percentage points' worth of gross margins, while its own 20% margins (while they last) are objectively enormous.  

And NVIDIA's market presence is widespread. You'll find NVIDIA chips in computers from Apple (NASDAQ:AAPL), Sony (NYSE:SNE), Dell (NASDAQ:DELL), and Hewlett-Packard (NYSE:HPQ). Sure, NVIDIA's short-term troubles are disappointing, but unless management tells us tomorrow that its long-term prospects have been ruined, this stock cannot help but rise again. Eventually.

Still having trouble envisioning NVIDIA's problems? These articles may help:

Both Apple and NVIDIA are Motley Fool Stock Advisor selections. Dell and Intel are Inside Value picks. Try these market-beating publications free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above. Why do we tell you this? Because The Motley Fool has a disclosure policy.