By most measurements,
showed he had a good year when he reported the results Wednesday night. But with semiconductor companies benefiting from an increase in demand for very few chips, investors are demanding flawless excellence.
Sure enough, Nvidia shares (ticker: NVDA) fell 8% on Thursday, as Wall Street struggled with how the company’s results match a stock price at 41 times earnings estimates for the next 12 months. .
Jefferies semiconductor analyst Mark Lipacis attributed the stock’s weakness to the company’s steady quarter-over-quarter growth in its data center business, along with bad memories from Nvidia investors of volatile Bitcoin trading.
In recent years, graphics cards powered by Nvidia chips, and traditionally designed for video games, have become popular in the machines used to mine bitcoins and other cryptocurrencies.
In its data center segment, Nvidia reported impressive growth compared to the prior year period, nearly doubling fiscal fourth quarter sales to $ 1.9 billion. Nvidia CFO Colette Kress said the sales growth was driven by Nvidia’s new graphics processing unit, or GPU, architecture, in conjunction with Mellanox’s acquisition of the company.
However, data center sales were stable compared to the third quarter.
“Flat quarterly growth was disappointing for high P / E stock, and did not meet higher buying expectations,” Lipacis wrote. “We see that the data center spend on processors has recently been exhibiting periods of growth above the trend line followed by periods of digestion, and that the data center is now in a period of digestion.”
Lipacis wrote that those moments in the past proved to be buying opportunities. “More importantly, the last time NVDA was sold during a data center digest period was 4Q18-1Q19, which turned out to be an opportune time to buy shares,” wrote Lipacis.
In terms of cryptocurrencies, investors seem concerned that Nvidia’s recent results have been boosted by Bitcoin’s latest rally, which recently surpassed the $ 50,000 level. But previous crypto meetings have proved problematic for Nvidia. When the prices of digital currencies fell rapidly in 2018, miners quickly sold their graphics cards. The flood of cheap cards hurt Nvidia’s revenue and left it with significant inventory.
Lipacis notes that for the fourth quarter of that year, sales in Nvidia’s video game segment had declined to $ 954 million from $ 1.76 billion in the previous quarter. The shares fell to around $ 124 from $ 292 in three months, he wrote.
Nvidia has taken steps to address the problem, driven by the popularity and performance of its new Ampere-based graphics chips.
Last week, Nvidia announced a specialized line of products for cryptocurrency miners, estimating that sales of such units would amount to $ 50 million in the first fiscal quarter, which ends in April. The company is also limiting the mining capabilities of its lower-end RTX 3060 graphics cards and chips, forcing crypto miners to pay for more expensive cards.
CFO Colette Kress said on the earnings call that the company has no way of determining what buyers are doing with its current catalog of graphics chips.
Write to Max A. Cherney at [email protected]