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Nvidia Q3 report is ‘no reason to turn materially bullish on stock’

By:
on Nov 17, 2022
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  • Nvidia reports Q3 results and issues guidance for the future.
  • ISWM's Paul Meeks shares his outlook on the Nvidia stock.
  • Nvidia Corp is currently down more than 45% year-to-date.

Nvidia Corporation (NASDAQ: NVDA) says its earnings came in shy of Street expectations in the third quarter. Shares are marginally up in after-hours even though its future guidance was also slightly on the weaker side.

Why is Nvidia stock holding up then?

The stock is up because the earnings print wasn’t entirely devoid of positivity. To begin with, the top-line was better than expected.  

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But more importantly, Nvidia said alternative products like the recently launched “A800” helped offset (for the most part) the $400 million hit to sales it had forecast in August following the new U.S. restrictions that barred it from exporting its sophisticated chips to China.

Pro shares his outlook on the Nvidia stock

Nonetheless, it’s not a big enough reason to buy Nvidia stock at the current price, as per Paul Meeks – Portfolio Manager at Independent Solutions Wealth Management.

Nvidia is under a profit squeeze. It’s still trading at 35 to 40 times earnings and so, I don’t think the bottom is yet in this stock. I’d stay away from it. Its Q3 or guidance is no reason to turn materially bullish on the stock.

He’s bearish because the semiconductor behemoth is still wrestling with a bunch of macro headwinds, including an unprecedented slowdown in PC sales and the crypto winter that’s made mining less profitable.

A slowdown in consumer spending on fears of an imminent recession hurts its gaming business as well. On Yahoo Finance Live, Meeks added:

We could easily retrace the bottom in NVDA. If you want to be in semiconductors, I like AMD and Qualcomm. They have close to a trough in estimates as Nvidia may or may not have. But they have valuation support that Nvidia does not have.

Data centre and gaming update

Nvidia Corporation had a better than expected $3.81 billion in sales from “data centre” this quarter – up 31% versus last year. But that could change in a recession, according to Meeks.

They’re a major player in data centre and they always will be. They’ll have explosive growth coming out of this base at some point. Although, in a recession, I expect even the data centre business to see some slowdown.

For the year, Nvidia stock is down more than 45% at writing. Its gaming sales crashed 51% in Q3 to $1.57 billion – better than $1.42 billion expected, though.

They’re well positioned in gaming but that business has struggled somewhat. Gaming business is also selling cards for crypto trading and that’s in total peril. So, I won’t buy this stock unless it was so much cheaper.

Nvidia’s Q3 results and future outlook

  • Earned $680 million versus the year-ago $2.46 billion
  • Per-share earnings tanked from 97 cents to 27 cents
  • Adjusted EPS was 58 cents as per the press release
  • Revenue fell 17% year-over-year to $5.93 billion
  • Consensus was 71 cents a share on $5.78 billion revenue

For the current financial quarter, Nvidia is calling for $5.88 billion to $6.12 billion in revenue. In comparison, analysts were at $6.07 billion.