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Analysis

Earnings Preview: Can Nvidia save semiconductor stocks?

NVIDIA earnings

Chipmakers have faced the hardest global headwinds due to a rapid pace of valuation downgrades seen in growth stocks. Nvidia’s shares have halved since November 2021 all-time high. Despite strong earnings expectations, Nvidia’s share price may not easily shrug off the current bleak macroeconomic backdrop. The company will report its first-quarter earnings after the US markets close on Wednesday, 25 May. While subsided gaming sales are expected, its datacentre sales may remain in a rapid growth trajectory path as the supply shortages of semiconductor components may see improvement. And other segments, such as crypto assets mining and automotive cars may take a hit due to the downtrend of these sectors.

Datacentre sales may top the gaming segment

Nvidia delivered a record revenue growth of 53% quarterly and 61% annually in the fourth quarter of FY 2022. Analysts expect a slowdown in its revenue growth but offset by upbeat earnings per share in the first quarter.

On a negative note; its largest revenue contributor, the gaming segment may see its growth subdued in the first quarter due to softening demands from its 2021 peak. According to FactSet, Nvidia’s gaming sales are expected at $3.46 billion, or a 1% quarterly increase which translates to a significant slowdown from the 6% growth recorded in the prior quarter. In contrast, analysts expect its datacentre’s sales will remain strong due to supply shortage in server chips, forecasting its sales at $3.58 billion which translates to a 10% growth quarterly vs. 11% in the previous quarter and a growth of 75% annually vs. 71% in the fourth quarter. In addition, the company’s outlook for the supply and demand of semiconductor chips for the rest of the year will be another key gauge to determine the future performance of its share price.

The company expects total revenue of $8.10 billion, plus or minus 2% for the first quarter of FY 2023, or a 43% quarterly growth from a year ago vs. 53% seen in the previous quarter. Its earnings per share (EPS) are expected to be at $1.30 which represents an increase of 43.4% annually vs. a 103% increase in the prior quarter.

Termination of ARM deal

Nvidia has failed to acquire Arm Ltd, a major semiconductor and software design firm which will cost the company approximately $1.36 billion in fees. This additional cost could also weigh on its earnings performance in the first quarter, but it is not likely to be a major drag on its share price performance as market participants have already digested such news. 

Technical analysis – Watch the 213.00 key resistance on NVIDIA (NVDA)

(Click to see the enlarged chart) Source: CMC Markets of 23 May 2022

Since its 29 March 2022 high of 289.34, the share price of NVIDIA (NDVA) has accelerated to the downside as per depicted by its price actions that have oscillated within a steeper descending channel and plummeted by -46% to print a low of 155.69 on 12 May 2022. Overall, it has recorded a loss of -55% since the start of its major down trend phase from its 22 Nov 2021 all-time high of 346.10.

No clear signs of a medium-term bullish reversal at this juncture with the daily RSI oscillator (a momentum indicator) this is still being capped below a key corresponding resistance zone of 43%/53%. If the 213.00 key medium-term pivotal resistance is not surpassed to the upside, NVDA may see a further push down towards 147.30 and a break below it is likely to reinforce a drop towards the next support at 122.65/118.90 (the range support from 4 September 2020/8 March 2021 and a cluster of Fibonacci extension levels).

However, a clearance with a daily close above 213.00 invalidates the bearish scenario for kickstarting a multi-week corrective rebound towards the 267.20/285.90 resistance zone.

 

 


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