On Thursday in the lead up to the company’s third-quarter earnings report, Nvidia (NASDAQ:NVDA) investors were feeling pretty good. NVDA closed up 2.64% — a rarity for tech stocks these days. Things rapidly went downhill. After a dismal forecast for Q4 that’s being blamed largely on a lasting “crypto hangover,” Nvidia stock was down as much as 19% in early morning trading, dipping under $165 at one point.
NVDA Reports Q3 Earnings, Nvidia Stock Gets Hammered
Nvidia reported its Q3 earnings on Thursday evening. There were some positives highlighted by revenue that was up 21% year-over-year and record revenue for the company’s Automotive, Professional Visualization and Datacenter divisions.
However, those divisions are not NVDA’s primary sources of revenue. That would be the Gaming division (which accounts for more than half of the company’s total revenue). And while Gaming did deliver a 13% YOY revenue increase, it slid compared to the previous quarter. And things aren’t looking great for Gaming in the coming quarter.
Overall, NVDA missed expectations and worse, delivered a Q4 forecast that is way off what analysts had been expecting, largely as a result of the collapse of the crypto currency mining market. As a result, Nvidia stock was hammered in after-hours trading, dropping by as much as 19% as investors reacted to the news.
According to Nvidia, Q4 revenue is likely going to come in around $2.7 billion. As Bloomberg points out, analysts had been expecting $3.4 billion. With Q4 2018 revenue at $2.91 billion, that would also mean a YOY revenue decline for the company, which is never a positive.
Why the gloomy outlook? NVDA is blaming cryptocurrency, the same phenomenon that helped boost Nvidia stock to record highs. This time, the effect is negative. With cryptocurrency values collapsing, there is no demand for graphic cards to power crypto mining rigs. As a result, retail channels are packed with Nvidia video cards, which had been churned out to meet NVDA’s key PC gaming market, while also taking advantage of the demand from crypto miners.
In its earnings announcement, the company noted: “Our near-term results reflect excess channel inventory post the crypto-currency boom, which will be corrected.” And in the earnings call, Nvidia’s CEO referenced a “crypto hangover.” Retailers are expected to cut prices of Nvidia cards to move that excess inventory over the next quarter, but that means fewer of the company’s latest cards will be shipped. Graphics card rival Advanced Micro Devices (NASDAQ:AMD) is suffering the same challenge, but that doesn’t make the situation any better for Nvidia.
Crypto Hangover Is Bad, But There Are Other Factors
The glut of Nvidia graphic cards resulting from turning off the cryptocurrency mining faucet is a key factor here. But it’s not the only issue that’s worrying Nvidia investors. Gaming revenue was up YOY, but declined from the previous quarter, despite the release of the company’s advanced new Turing-based video cards.
And the company warned that revenue for its Tegra chip — used primarily by Nintendo’s (OTCMKTS:NTDOY) Switch console — would be “minimal” in the next quarter, for seasonal reasons after posting a YOY decline of 3% for Q3. That news of slowing Tegra demand hit Nintendo stock, which dropped 9%.
On the plus side, InvestorPlace’s Brent Kenwell points out that NVDA has been a “no-brainer” bellow $200. If so, Nvidia stock is an even bigger bargain today.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.