- Nvidia (NVDA) reports earnings after the market closes on May 25.
- The “whisper number” may be hard to beat, and the company may warn on future growth.
- NVDA stock is now 20% cheaper than it was when it split shares 4:1 last year.
Nvidia (NASDAQ:NVDA), the graphics chip leader, has lost nearly one-third of its value since it last reported earnings in February.
It’s due to report again after the market closes May 25. Officially, expectations remain high. While the official earnings estimate is for net income of $1.20 per share, the “whisper number” analysts tell their best customers is for net income of $1.35 per share, or over $3.3 billion, on revenue of $8.12 billion.
The stock, however, continues to fall, down 45% so far in 2021. It’s now 20% below where it was when it split 4:1 last year. This has taken the market cap down to $400 billion, which is still more than twice rival Intel’s (NASDAQ:INTC) $170 billion.
Nvidia is already reacting to slower growth, slowing hiring and blaming rising inflation. But the expected revenue number is still 44% ahead of what it did for the same quarter last year.
Despite this, bullish analysts are reducing their price targets on the stock. Even if the company reports solid numbers, it could warn on weakness ahead.
Much of the blame goes to cryptocurrency mining. Crypto miners use a lot of Nvidia chips, and crypto has fallen hard this year. The price of a Bitcoin (BTC-USD) is down from over $46,000 to under $30,000, even as mining costs rise as it approaches the theoretical limit of 21 million coins.
The Securities and Exchange Commission (SEC) recently fined Nvidia for failing to warn about the impact of crypto mining on its business. But Louis Navillier says investors should see that as a gift.
There’s more bearish news. The after-market price of Nvidia gaming cards is falling. Rival Advanced Micro Devices (NASDAQ:AMD) is now selling its cards at standard retail prices, without the usual mark-up. Shares of AMD, memory chip maker Micron Technologies (NASDAQ:MU) and communications chip maker Qualcomm (NASDAQ:QCOM) are all down this week. The iShares Semiconductor ETF (NYSEARCA:SOXX) is down 25% on the year.
Why are chip stocks being hit when there’s still a shortage? Inflation has analysts pricing in a recession, even in technology.
Despite the stock troubles, Nvidia is taking a victory lap at the annual CompuTex trade show in Taiwan.
Its data center business continues to grow. Equinix (NASDAQ:EQIX) has already signed-on as a customer for its latest liquid cooled chips. The company says its latest data center chips use 30% less energy than earlier designs that relied on air cooling. These “superchips” are designed to transform data centers into “AI factories,” which Nvidia calls a $150 billion market opportunity.
Analysts haven’t given up on Nvidia either. There are 27 of them at Tipranks, with 22 telling investors to buy the stock. Their average price target would have their value nearly double over the next year.
Bottom Line on NVDA Stock
I have owned Nvidia shares for several years. After the stock split, I sold some, recouping my investment.
It may be time for me to buy more.
Nothing fights inflation better than technology, and Nvidia remains in the sweet spot. It continues to import supplies from Taiwan Semiconductor (NYSE:TSM) fabs, and with the Taiwan dollar now trading at 30 to the dollar, instead of 28, it benefits from foreign exchange. TSMC is now building a large fabrication plant in Arizona, that will produce chips with lines just 5 nm apart. Abundant renewable energy is said to make up for higher water costs.
Still rising costs, the fall of crypto and delays in getting artificial intelligence software into the global market are all weighing on the stock. If Nvidia misses the number and goes lower, buy it.
On the date of publication, Dana Blankenhorn held long positions in NVDA,TSM, INTC and QCOM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.