* Reports Q4 2019 results on Thursday, May 16 after market closure
* Revenue expectation: $ 2.2 billion
* Expected expectation: $ 0.62
The 13% dive in NVIDIA Corporation (NASDAQ 🙂 shares in the past month is a sign of concern about the company report. Investors are almost certain that the high-profile recovery of semiconductor demand is not in sight, and that means that the maker of computer graphic card chips is not completely out of the woods.
Nvidia saw inventory levels rise and buyers have been slowing down their purchases since the fourth quarter of last year. The industry-wide slowdown has hit the company's revenues hard, especially those from chips used in gaming and data centers, the two largest revenue-generating units.
Cloud computing companies such as Amazon.com (NASDAQ 🙂 and Alphabet (NASDAQ 🙂 have invested heavily in their data processing capabilities over the past five years, increasing the demand for chips. But the earnings reports from Nvidia's competitors in recent weeks show that demand from some of the largest international technology companies remains weak.
Intel Corp. (NASDAQ :), & # 39; the world's second largest semiconductor manufacturer, said last month that the data center group will publish a revenue decline in 2019, the first decline in a decade. Samsung Electronics (KS :), & # 39; the world's largest maker of memory chips, called "uncertainties in the external environment" for the slow recovery.
A sharp change in stock Price
Nvidia & # 39; s data center revenue, which comprises approximately 30% of Nvidia's total revenue, is expected to fall to $ 665 million in the first quarter, compared to $ 701 million a year ago, according to FactSet. Overall earnings per share are likely to fall to $ 0.62 from $ 1.98 a year ago and sales to shrink by 31% to $ 2.2 billion, according to the average analysts' forecast
In the midst of this pessimism, the shares of Nvidia have lost much of their steam, reducing their 40% rally this year by almost half in the last four weeks. They recorded 1.5% at $ 159.58 at the end of Wednesday, a sharp turnaround from last October when they reached a record high of $ 292.76.
In addition to the cyclical slowdown, another major concern that will keep Nvidia's shares under pressure is the deteriorating US trade relations with China, where the chip maker generates around 20% of its sales. Both the U.S. and China have announced that they will raise the rates on each other after they have failed to conclude a long-awaited trade agreement this month.
Nvidia has invested heavily in China, where many of its chips are used for assembly in other products, especially in sectors related to artificial intelligence. According to a recent report in the Wall Street Journal, Nvidia's executives are concerned that a deteriorating relationship between the world's two largest economies will encourage Beijing to accelerate its efforts to reduce dependence on US chip manufacturers by reducing its own competitors. nurture and eat Nvidia & # 39; s long term. business.
Bottom Line
This broad weakness in the semiconductor sector suggests that it takes much longer than expected for chip producers to return to their growth trajectory, especially when expansion in China slows down and buyers are waiting for a further fall in graphic card prices. In our opinion, these multiple challenges are likely to keep Nvidia stocks under pressure, at least in 2019. Investors would be better off avoiding semiconductors in this uncertain environment.
