Nvidia Lowers Forecast

The semiconductor industry is naturally cyclical. It has been that way since computing and chips became mainstream items. They are complex to manufacture with long lead times in developing fabrication plants, so managing the inventory can be tough. We have 522 clients that own Nvidia, the leading semiconductor chip maker on the planet. We need to understand these cycles in order to manage expectations.

On Monday, Nvidia issued a surprise update, warning that sales would be 17% below their forecast for the latest quarter. That's a huge miss. The reason given by the company is a big slowdown in their gaming division. It seems that gamers have been delaying upgrades, or even dropping their consoles to get outside and take in some fresh air. Another example of post-Covid behaviour.

Nvidia has also been caught in the crossfire of the wild crypto market. Their gaming chips are also used to mine Bitcoin, so demand for chips soars when the Bitcoin price is high. Even when faced by high demand, Nvidia doesn't increase their prices because they want to protect their loyal gaming clients, and most of the profits go to chip resellers. When the crypto market drops, demand falls fast and Nvidia gets stuck with too much inventory. It is a tough cycle to manage.

This happened before in 2018 after the first mainstream crypto rush up and subsequent crash. The share price of Nvidia is down 40% this year so far, but we have survived swings like this in the past. This company has incredible engineers and great technological prowess. We are still very optimistic about their data centre business and feel that they will manage through these demand cycles. It comes with the package. This stock is worth the ride.