NVIDIA Stock Slumps on Weaker Fiscal Q3 2019 Guidance

NVIDIA’s stock reacts to latest earnings

NVIDIA (NVDA) has been a top-performing stock, rallying 680% since the start of 2016 as its GPUs (graphics processing units) have been adopted beyond gaming and into AI (artificial intelligence), autonomous vehicles, and cryptocurrency mining. The crypto boom helped NVIDIA and its rival Advanced Micro Devices (AMD), bringing them windfall gains between June 2017 and March 2018.

NVIDIA Stock Slumps on Weaker Fiscal Q3 2019 Guidance

However, the crypto boom faded, and so did their windfall gains. NVIDIA stock fell as much as 6% in after-hours trading on August 16, 2018, as weaker-than-expected fiscal Q3 2019 guidance and a slump in crypto-related sales eclipsed its better-than-expected fiscal Q2 2019 earnings. The weaker-than-expected guidance is a big deal for NVIDIA’s investors, as the company has beaten estimates by a huge margin for the last 2.5 years.

Earnings highlights

In fiscal Q2 2019, NVIDIA’s revenue rose 40% YoY (year-over-year) to $3.12 billion, and non-GAAP (generally accepted accounting principles) EPS (earnings per share) rose 92% YoY to $1.94. These figures beat the consensus EPS estimate of $1.64 on $3.1 billion in revenue. On a sequential basis, NVIDIA’s revenue fell 3%, and EPS fell 5% due to weak crypto-related GPU sales.

NVIDIA continued to witness double-digit YoY growth in its key growth markets of the data center, gaming, professional visualization, and automotive. It expects this trend to continue in fiscal Q3 2019 and has therefore guided revenue of $3.25 billion, up 23% YoY, its weakest growth since fiscal Q2 2016. This guidance is lower than the analysts’ estimate of $3.34 billion.

Should investors buy on the dip?

The fiscal Q3 2019 guidance shows that NVIDIA’s 2.5-year long super growth cycle is slowing. Thus, many investors, who saw returns of 600% during this time, are reacting to the weakness. However, some investors consider this correction as an opportunity to buy, as NVIDIA has strong growth potential in several untapped opportunities. We’ll look into this next.

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