The Problems Nvidia Is Currently Facing; Any Hope In SIght?
There is no question that Nvidia will continue to be the dominating market leader in the discrete GPU area for the foreseeable future.
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Precious Njoku is a Financial Writer with extensive knowledge about the stock market.
2022-11-19 11:30

The third-quarter fiscal 2022 financial results for NVIDIA Corporation (NASDAQ: NVDA) were mixed. The bottom line was below expectations, but the top line was about the Zacks Consensus Estimate. Earnings and revenue were down sharply from the prior year's third quarter.The Problems Nvidia Is Currently Facing; Any Hope In SIght?
NVIDIA's 58 cents per share in non-GAAP earnings for the third quarter fell short of the Zacks Consensus Estimate by 17.1 percent. Furthermore, the reported number dropped by 50% year-over-year while increasing by 14% sequentially. Declining revenues and rising operating costs were the primary contributors to the earnings reduction from the previous year.

The ongoing deterioration in its Gaming and Professional Visualization business segments led to a 17% year-over-year and 12% sequential revenue decline to $5.93 billion in the third quarter. The reported quarter's bottom line was further impacted by weaker-than-expected demand for data centers in China. Although the top line was expected to be $5.81 billion, it came in at $5.92 billion.

The big question on everyone's lips is what went wrong with Nvidia? This was a company with promising potential. During the start of the Covid year, we saw This was the stock of everyone's dreams. Currently, NVIDIA is a shadow of itself.

The problem NVIDIA is currently facing
The following are some of the factors that have contributed to the decline in gaming revenues and drop in sales:

  • Coronavirus Epidemic - Nvidia (NASDAQ: NVDA) saw a massive rise in sales during the coronavirus period. There were more demands during the lockdown than when it got lifted.

  • Lack of video cards - The lack of video cards caused prices to increase significantly in response to the growing demand for GPUs. Recently, there was a shortage of GPUs, which led to higher prices, which resulted in a significant boost in Nvidia's revenue. As a result of an oversupply of GPUs, prices are going through a temporary fall, leading to Nvidia seeing lower sales

  • Reduced crypto miners - The demand for mining cryptocurrencies has decreased, which is bad news for Nvidia because the majority of their gaming GPUs were used for mining. On the other hand, Nvidia may see a reduction in demand for sure of its goods, given that Ethereum and other networks are shifting away from using GPU mining.

  • The overall downturn in the economy - The economy around the world is currently experiencing a slowdown. As a result, it is natural to observe a decrease in demand for products related to gaming. In addition, the effect is becoming more pronounced as GPU prices continue to fall below MSRP.

The key takeaway is that the variables responsible for the decline in gaming revenues are temporary. It's not like Nvidia (NASDAQ: NVDA) started producing shoddy goods, nor did another company start making better graphics processing units (GPUs). There is no question that Nvidia will continue to be the dominating market leader in the discrete GPU area for the foreseeable future.

Conclusion
The company may seem expensive at about 50 times this year's estimated earnings per share (EPS),but it should become more profitable in the years to come. Even though Nvidia is only expected to earn about $3.35 per share this year, it should make about $4.50 per share next year, a growth of more than 30%. EPS estimates have also dropped a lot during this recession, but they are likely to go up as the economy gets better and Nvidia grows.


Disclaimer: I have no positions in any of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. All information should be independently verified and should not be relied upon for purposes of transacting securities or other investments. See terms for more info.

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2022-11-19 11:30

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About the Author
Precious Njoku is a Financial Writer with extensive knowledge about the stock market.

Analyst Ratings
Target Price$195.55
# of Analysts40
Last updated2022-12-08

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