Nvidia Corporation (NASDAQ:NVDA) is set to report its second-quarter fiscal 2022 earnings on Aug. 18. The quarter ended on Aug. 1 and encompasses a period where Nvidia has faced some big challenges. The global semiconductor shortage is showing no signs of easing. At the same time, the cryptocurrency market has been in turmoil. At this point, NVDA stock — which had been rallying after a crypto-related slump in July — is sliding again.
Is now the time to add NVDA stock to your portfolio? It current earns a B rating in Portfolio Grader. It has been a solid pick for long-term growth, especially over the past five years. And in 2021, NVDA is up nearly 50% despite many challenges.
The investment analysts at the Wall Street Journal give the stock a consensus “Overweight” rating. I previously wrote about why I’m not concerned about the crypto market when it comes to Nvidia. This time, let’s have a closer look at that chip shortage.
It’s bound to be a part of the Q2 earnings story.
The Global Chip Shortage and Its Impact on Nvidia
The ongoing shortage of semiconductors and other chips has had an impact on Nvidia. The difficulty in obtaining chips affects all aspects of its business, including graphics cards, data center and AI solutions and processors for the automotive market.
In January, Nvidia warned that the chip shortages would mean it would be unable to meet consumer or partner demand. The good news for investors? Despite being unable to meet demand, Nvidia still reported record quarterly revenue. The company would have done even better had the supply of chips not been an issue. But for Nvidia, the shortage has not yet proved to be disastrous.
Adding to the difficulty in divining how this will turn out for Q2 is mixed messaging on the shortage status. In June, it was reported that semiconductor fabricators were upping their capacity to produce chips for the auto industry, and that the chip shortage was easing.
A few days ago, Recode reported that the shortage is actually getting worse and may last not just into 2022, but into 2023 as well.
Bottom Line on NVDA Stock
The global semiconductor challenge is a part of the NVDA stock story, no matter how you look at it.
On one hand, even though it does not operate foundries to fabricate its own chips, Nvidia designs and sells them. It is often considered a semiconductor stock. In that sense NVDA stock has benefited from a general surge in semiconductor stocks during the chip shortage.
On the other hand, because Nvidia relies on third party contract manufacturers to actually fabricate the chips it designs, the company is experiencing product shortages. It may be booking record revenue, but if it had more GPUs to sell, those numbers would be even higher.
When Nvidia reports its Q2 earnings next week, which half of the global chip shortage equation is going to be the story? Based on the latest news on the industry, the chip shortage is going to be front and center.
In addition, the instability in the cryptocurrency market is still going to be a factor. With crypto prices dropping during the quarter, crypto mining rigs have been shutting down and that means lower demand for Nvidia graphics cards in that market. We’ve already seen that crypto weakness hurt NVDA shares just weeks ago.
There’s no guarantee about how the market will react to Nvidia’s second-quarter earnings. We may see NVDA stock slide afterward. Of course it could also pop if we see a repeat of Q1’s record-setting numbers. In either scenario, my take on NVDA stock remains the same. This is an investment that has delivered massive gains over the past five years. Despite occasional setbacks (like 2018’s crypto hangover), it’s in a position to continue delivering in the long-term.
On the date of publication, Louis Navellier had a long position in NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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