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Earnings preview: Nvidia’s revenue is set to fall

Nvidia

Nvidia is to report its Q3 FY22 earnings after the US markets close on 24 August. The company’s shares fell 44% year-to-date due to the global headwinds, which are now facing challenges of hitting a peak in the semiconductor’s supply-demand cycle.

While the gaming segment may encounter a sharp drop in revenue, the data center sales are expected to slow down in growth. But the company’s guidance for the third quarter will be a key focus for investors to gauge its growth trajectory on an already lowered earnings prospect.

After giving light revenue guidance in May, the chipmaker further cut its revenue estimate to $6.70 billion from $8.10 billion, or a 19% drop sequentially, and a 3% growth annually, early in the month. Softened demands in gaming amid the macroeconomic headwinds are the major negative factor that has restrained the segment’s growth. The meltdown in the crypto markets may have also significantly weakened the GPU’s demands, leading to an excessive inventory in its data center department.

The gaming segment is expected to fall 44% quarterly to $2.04 billion, or a 33% drop annually, while the data center revenue is forecasted to only grow 1% sequentially to $3.81 billion, up 61% from a year ago, which is also a sharp slowdown from annual growth of 83% in the March quarter. Analysts estimated earnings per share are between 36 to 51 cents for the June quarter versus $0.89 the prior year.  

Despite negative expectations towards its upcoming earnings, the business’ guidance will be a core to moving the further share price. “We believe our long-term gross margin profile is intact. We have slowed operating expense growth, balancing investments for long-term growth while managing near-term profitability. We plan to continue stock buybacks as we foresee strong cash generation and future growth,” stated Colette Kress, EVP, and CFO of Nvidia in a news release early in August.

From the macro perspective, any dovish tone by the Fed at the Jackson Hole Symposium could offer a relief rally in the growth stocks, typically in the semiconductor sector later this week.

Technical analysis

The short-term double-top pattern may send the share price into a bottoming range movement 

Nvidia’s shares have formed a double-top pattern on both 5 and 15 August, suggesting that the share price may face further pressure in the near term. The imminent support is at the 50-day MA around 170. A breakdown of this level may take the share price to further test 159, which is short-term support, then the low of 140 on 5 July.

On the flip side, a clearance of the pivot resistance of 192 could send the shares higher to near 218 on the 38.20% of Fibonacci retracement. 


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