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With most measures,
Nvidia
showed it had a good year when it reported results late Wednesday. But with semiconductor companies benefiting from a surge in demand for too few chips, investors are demanding impeccable excellence.
Sure enough, shares of Nvidia (ticker: NVDA) fell 8% Thursday as Wall Street grappled with how the company’s results match a stock trading at a lofty 41 times earnings expectations for the next 12 months.
Jefferies semiconductor analyst Mark Lipacis attributed the stock’s weakness to flat quarter-on-quarter growth in its data center operations, along with Nvidia investors’ bad memories of volatile Bitcoin trading.
In recent years, graphics cards powered by Nvidia chips – and designed traditionally for video games – have become popular in machines used to mine bitcoin and other cryptocurrencies.
In its data center segment, Nvidia reported impressive growth compared to the same period last year, nearly doubling its fourth-quarter revenue to $ 1.9 billion. Nvidia CFO Colette Kress said the revenue growth was driven by Nvidia’s new graphics processing unit or GPU architecture, along with the company’s acquisition of Mellanox.
However, data center sales were stable compared to the third quarter.
“Flat quarter-on-quarter growth was disappointing for a high P / E share, and it lagged behind higher buy-side expectations,” Lipacis wrote. “We see that data center spend for processors has recently been showing periods of above trend growth, followed by periods of fermentation, and that the data center is now in a digestion period.”
Lipacis wrote that such moments in the past turned out to be buying opportunities. “More importantly, the last time NVDA was sold during a data center fermentation period was 4Q18-1Q19, which turned out to be an appropriate time to buy the stock,” Lipacis wrote.
In terms of cryptocurrencies, investors seem to be concerned that Nvidia’s recent results have been boosted by the latest rally in Bitcoin, which recently broke the USD 50,000 level. But previous crypto rallies have proved problematic for Nvidia. When digital currency prices fell rapidly in 2018, miners quickly sold their graphics cards. The flow of cheap cards damaged Nvidia’s earnings, leaving it with significant inventory.
Lipacis notes that in the fourth quarter of that year, sales in Nvidia’s video game segment were down to $ 954 million, compared to $ 1.76 billion in the previous quarter. Shares fell from $ 292 to about $ 124 within 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, with sales of such units estimated to be $ 50 million in the fiscal first quarter ending in April. The company is also limiting the mining capabilities of its low-end RTX 3060 graphics chips and cards, forcing crypto miners to pay for more expensive cards.
CFO Colette Kress said in the earnings call that the company cannot control what buyers do with its current graphics chip catalog.
Write to Max A. Cherney at [email protected]