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Nvidia has been hurt by fading demand for gaming graphics cards since the pandemic.
Justin Sullivan/Getty Images
Nvidia
warned that shortfalls in revenue from the gaming segment would hamper second-quarter results. Analysts wondered how much could be due to a drop in demand from gamers, compared to cryptocurrency miners.
The company said Monday that preliminary revenue for the second quarter was $6.7 billion, well below the outlook for $8.1 billion. The firm pointed to a 44% quarter-over-quarter decline in gaming segment revenue to $2.04 billion.
“Our gaming product sell-through estimates fell significantly as the quarter progressed,” CEO Jensen Huang said. “As we expect the macroeconomic conditions affecting throughput to continue, we took action with our gaming partners to adjust channel pricing and inventory.”
Barron’s warned about it in April
Nvidia
stocks could suffer as pandemic demand for gaming graphics cards faded, especially if crypto miners appeared to offload high-end cards as they prepare for the Ethereum blockchain network’s migration to a “proof-of-stake” model from “proof-of-work.” The transition, which has not yet occurred, will mean that graphics cards are no longer required for ether mining. Industry observers have noticed an increase in promotions for high-end graphics cards that were once excessively marked up and sold well above MSRP.
Nvidia’s news release, which the company declined to comment on further, did not mention a pullback in demand from cryptocurrency miners, but Raymond James analyst Melissa Fairbanks notes that the estimated 44% quarter-over-quarter drop was similar in magnitude to a pullback that lined up with 2018’s crypto crash.
“As such, we believe that while there is significant negative sentiment around consumer spending, this current reset should reflect somewhat of a ‘clear the decks’ scenario following a period of exceptionally strong demand,” Fairbanks wrote.
This is not to say that gaming expenses are increasing. Earlier this month, research firm NPD group said overall video gaming spending in the US fell 13% year over year to $12.35 billion during the second quarter.
“Higher prices in everyday spending categories such as food and gas, the return of experiential spending such as travel and attending live events, an easier release of new games, and continued constraints in the supply of new generation console hardware were all likely contributors to the decline seen. in the second quarter, Mat Piscatella, gaming industry analyst at The NPD Group, said in a press release.
Such trends could also affect spending on gaming cards, especially after many consumers upgraded their computers during the pandemic, essentially driving demand forward. After the close on Monday, video game publisher
Take-Two Interactive Software
( TTWO ) also missed analysts’ expectations for adjusted earnings as the company warned that macroeconomic concerns weighed on results.
Fairbanks cut its price target to $240 from $250, but maintained a strong buy rating. While she cut short-term expectations, she believes the firm will benefit from long-term growth in its data center, automotive and software businesses. Nvidia shares fell 6.3% to $177.93 on Monday.
“Importantly, data center revenue hit another record high, and while sales were slightly below initial expectations, the shortfall there was solely related to supply constraints, rather than weakened demand,” she wrote.
Write to Connor Smith at [email protected]
