Nvidia Q3 - PC Shipment Hampers Gaming

Vestact-recommended Nvidia issue their numbers towards the end of earnings season. The semiconductor chip giant reported revenue that beat analysts' expectations but provided a muted outlook. Total sales came in at $5.93 billion thanks to very impressive revenue from the datacentre business unit (up 31%), but the legacy gaming chip business fell 51% year-on-year, hampered by a 19.5% drop in PC shipments in the quarter.

The company cut production to realign inventory with customer demand. The US government banned the sale of A100 chips in China, earlier in the year, citing security risks. That cost Nvidia $400 million in potential sales. The company response has been to roll out an alternative product range, the A800, which uses a slightly older chip design, in a better configuration.

The semiconductor business has always been cyclical, but this has been an especially tricky time. Demand for high-end computers has waned, thanks to less working from home and the recent collapse of crypto mining.

These pressures coincide with the release of Nvidia's new generation chips. New chips always generate strong interest among gamers, but electronics distributors that buy from Nvidia are still sitting on some inventory of older products that need to be cleared out, to make way for newer ones. This will linger in the next quarter before normalising.

While the chip industry is going through a correction, for Nvidia the challenges could be short-lived. The new China chip and the fast-growing automotive division, which saw 86% surge in sales, should help blunt the impact of waning demand in gaming. We still like this stock a lot.