• Brett Schafer

Is the Worst Over For Nvidia?

Chip and GPU maker Nvidia released their fourth quarter and fiscal 2018 earnings after the bell Thursday, “beating” analyst estimates. I put beating in quotations because these estimates come after the company lowered its guidance by $500 million in January. The company is still hurting from the crypto decline, inventory back-ups, and the ramp up of an expensive product in the latter half of 2018.

Here are the highlights from the report:

  1. Revenue of $2.21 billion for the quarter, down 24% Y/Y.

  2. Full year sales of $11.7 billion, up 21% Y/Y and gross margin increase of 130 bps.

  3. Guiding for next year’s revenue growth to be roughly flat.

Without context, this quarter looks abysmal. Investors should remember though that last year’s fourth quarter was the height of the crypto craze, giving Nvidia a one-time earnings boost. Even after the bump today the stock is still down 30% this year, so it looks like the decline in revenue is already priced in.

Nvidia’s one year chart.

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But is the Storm Over?

I basically trashed short-sighted investors for giving up on Nvidia 3 months ago, and that was when the stock was at $210 a share. If I decided to buy I would be pretty upset with the returns so far. Even with the drop-off I am still a firm believer in Nvidia’s long-term growth prospects.

The company continues to innovate in gaming, automotive (self-driving tech), and edge computing (autonomous systems), three industries I see growing tremendously over the next decade. They also power datacenters and cryptocurrency miners, so if Bitcoin is actually the future revenues could start to accelerate again. I really don’t know the likelihood of that but it is not an impossibility.

As many investors already know, the chip/semi-conductor/GPU business is very cyclical, and can employ big standard deviations in demand in the short-run. And since most investors are short-sighted, the stocks in this industry can be very volatile. But if you have a long-term horizon you can see that the demand for computing is steadily increasing, which Nvidia will undoubtedly take advantage of.

Disclosure: The author is not a financial adviser, and may have interest in the stocks talked about.

#Crypto #Earnings #Nvidia

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