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Nvidia. Picture: BLOOMBERG
Nvidia. Picture: BLOOMBERG

Nvidia tumbled 7% on Thursday morning in New York after the most valuable US chipmaker failed to impress investors with its latest forecast. 

Though the company topped Wall Street estimates with its fourth-quarter results — and projected strong growth for the current period — the share decline is a sign of Wall Street’s lofty expectations after Nvidia walked away from a $40bn acquisition of Arm earlier in February. 

CEO and co-founder Jensen Huang has turned a niche business — graphics cards for gamers — into a chip empire worth more than $600bn. But investors have high hopes for the company, and even a record-setting quarter can leave them underwhelmed.

In the “weird world” of Nvidia, investors’ expectations are always different from the consensus estimate, Vital Knowledge analyst Adam Crisafulli said in a note. Investors may have been looking for more upside, but within the next day or so, they’ll probably come back to the realisation that Nvidia has “some of the best fundamental prospects in tech,” he said.

There were some weak spots last quarter. Sales of Nvidia’s vehicle chips were lower than projected. And its adjusted gross margin came in at 67% — shy of the 67.1% analysts estimated and below what some chipmakers have reported recently. Analog Devices had a margin of 72% when it delivered its quarterly results earlier on Wednesday.

Supply constraints also are weighing on Nvidia’s data-centre chip business, but the situation is improving, Huang said in a conference call with analysts. Companies such as Nvidia that rely on outsourced chip manufacturing need to change the way they work with suppliers, Huang said. Making supply plans one quarter in advance doesn’t work at a time when the industry is expanding rapidly, he said. 

“We all have to recognise that the market size, our market footprint, is much larger than it used to be,” he said in an interview. “We have to plan with a much larger horizon.” 

Nvidia is bouncing back from its failed attempt to acquire Arm, a deal that faced regulatory opposition around the world. It terminated the transaction on February 8 and expects to write off $1.36bn this quarter to account for prepayments it pledged to Arm’s owner, SoftBank. Huang said on Wednesday that he gave the deal his “best shot”.

Nvidia had touted the purchase as a chance to expand its reach into many devices, including smartphones.

But even without Arm, Nvidia has been growing more quickly than projected. Revenue in the fiscal first quarter will be about $8.1bn, the company said Wednesday. That compares with a $7.2bn average analyst estimate, according to data compiled by Bloomberg.

Huang said that Nvidia would increase the number of Arm-based processors it made, and the current Grace model was only the beginning. He remained convinced that the technology, increasingly a rival to Intel’s X86, would carve out a bigger role for itself in computing. Arm chips are already pervasive in power-constrained technologies, such as smartphones.

Nvidia’s stock, which ended 2015 at $8.24, closed at $265.11 on Wednesday. But the shares have taken a hit lately, part of a broader decline for semiconductor stocks. They are down almost 10% in 2022.

The company has pushed into the booming field of artificial intelligence computing, where its processors are used to handle an ever-growing flood of data. That’s turned Nvidia’s products into essential equipment for data centres, rather than just gaming computers.

Nvidia posted sales of $7.64bn in the fourth fiscal quarter, topping the $7.4bn average prediction from analysts. Earnings came in at $1.32 a share, excluding some items, compared with an estimate of $1.22.

Revenue in Nvidia’s data-centre business rose 71% in the fourth quarter to $3.26bn, ahead of the $3.2bn estimated by analysts. Its main gaming business generated sales of $3.42bn, compared with an estimate of $3.36bn.

More stories like this are available on bloomberg.com

Bloomberg

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