Amid a soft performance for the major equity indices on Tuesday, Nvidia (NASDAQ:NVDA) posted a particularly glaring loss. Shares continued to fall in sympathy with fellow semiconductor specialist Micron Technology (NASDAQ:MU) following its disappointing earnings results last week. The disclosure indicated that demand for advanced computer chips fell after an initial post-pandemic burst. Now faced with rising inventories, the rough environment for the semiconductor space dragged down NVDA stock.
For Micron’s fiscal first quarter (which ended Dec. 1), the company posted an earnings per share loss of 4 cents. Unfortunately, covering analysts targeted a consensus EPS loss of only 1 cent. On the revenue front, Micron rang up only $4.08 billion, which represented a year-over-year (YOY) loss of 47%. As with the bottom line, the top line also missed the consensus estimate of $4.12 billion.
According to Barron’s, management revealed that “inventories remained elevated in key markets for PCs, smartphones and servers.” Notably, this metric came a little too close to home for investors of NVDA stock. For Nvidia’s quarter ended Oct. 31, its days inventory line item hit 138.22, representing a YOY lift of over 72%.
In the fiscal year ended Jan. 31, 2022, Nvidia’s days inventory reached 85.67. On a trailing-12-month basis, this metric stands at 99.06, posing concerns for NVDA stock if demand doesn’t catch up.
Still, Micron CEO Sanjay Mehrotra provided an optimistic framework, stating that profitability will be “strong” following this lull.
NVDA Stock Faces Macro Obstacles
Adding to concerns for NVDA stock is the Federal Reserve and its hawkish monetary policy. Earlier this month, Benzinga noted that the central bank raised the benchmark interest rate by 0.5%, or 50 basis points. Better-than-expected U.S. gross domestic product (GDP) and jobless claims data forced the Fed’s hands as it fights historically high inflation.
In normal circumstances, a robust labor market should bring good tidings for NVDA stock. Unfortunately, the money stock dramatically increased during the early days of the pandemic. With a hot workforce, this dynamic translates to more money chasing after fewer goods — the opposite scenario the Fed wants. Therefore, a recession could be on the way, presenting concerns for NVDA stock.
Indeed, Micron already acknowledged some of the pain associated with the current macro environment. In its earnings disclosure, management announced that it will cut 10% of its staff to control costs.
While the Fed’s stated goal in hiking rates focuses on inflation control, the action also impedes Russia’s invasion of Ukraine. As an energy-export-driven economy, higher rates would not help Russian war efforts. And this geopolitical crisis has a significant impact on the semiconductor industry, as Ukraine supplies a significant amount of neon gas used in manufacturing chips.
With the conflict unlikely to end anytime soon, the issue poses challenges to NVDA stock.
At the same time, most analysts refuse to hit the panic button on Nvidia. According to TipRanks, NVDA stock enjoys a consensus strong buy rating. Among 28 experts, 22 rate shares a buy, with five stating it’s a hold and one rating it a sell. Also, hedge funds substantially boosted their exposure to Nvidia since Q2 of this year.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
