Nvidia is set to release its latest quarterly report at a tricky moment in the semiconductor industry. There aren’t enough chips for products ranging from cars to the graphics cards made by Nvidia, and far too many buyers.
Amid the Covid-19 pandemic, the demand for Nvidia’s (ticker: NVDA) videogame chips has far outpaced the number of consumers seeking the cards that include them. Prices remain high in secondary markets, reportedly double what the company recommends, well over a quarter after the Ampere-based chips became available.
As irked as gamers—or cryptocurrency miners, another group of buyers—might be by the lack of supply, the surging demand has driven up forecasts for fiscal fourth-quarter sales in Nvidia’s videogame segment to $2.39 billion. That is nearly half of the overall revenue of $4.82 billion Wall Street expects. It would be the greatest dollar amount the videogame segment has generated in Nvidia’s history
The consensus estimate for adjusted per-share earnings is $2.81 a share.
The numbers are due after the close of trading on Wednesday. To keep investors happy, the company will likely have to both beat those expectations and raise its financial forecasts for the current quarter. Outsize demand has put semiconductor makers in the position of either beating what’s expected, or facing share-price punishment.
“We see Nvidia’s gaming business as particularly strong,” BMO Capital Markets analyst Ambrish Srivastava wrote in a note to clients over the weekend. “While the company’s core gaming franchise is the main source of strength, we also see crypto adding to the demand.”
Raymond James analyst Chris Caso wrote in a note to clients Tuesday that the company will likely deal with unfulfilled demand well into the current quarter, which ends in April.
Beyond videogame-driven demand, cryptocurrency miners have also taken an interest in the company’s latest Ampere-based graphics processing units, or GPUs. Cryptocurrency-related sales boosted Nvidia’s fiscal-third-quarter performance, and have prompted Nvidia to release dedicated crypto-mining cards and slow the mining abilities of its forthcoming budget videogame cards.
In 2018, a sharp fall in cryptocurrency prices left Nvidia with a significant amount of excess graphics-card inventory. That is a situation that it appears to be trying to avoid repeating.
“Nvidia’s release of more older GPUs as well as new crypto specific [products]could/should allow it to take advantage of heightened demand, despite supplyconstraints affecting its ability to ramp new mainstream GPU production,” Wedbush analyst Matt Bryson wrote in a client note Tuesday.
RBC Capital Markets analyst Mitch Steves wrote in a note that his team is forecasting quarterly cryptocurrency-related revenue of between $125 million and $200 million. Steves has a negative view of the company’s crypto-focused chips, arguing that miners are unlikely to buy specialized products given the high resale value of videogame cards.
Nvidia stock has gained 92% in the past year, while the S&P 500 index advanced 16%.
Of the analysts that cover the stock, 32 rate Nvidia at Buy, seven have Hold ratings, and two rate it at Sell. The average target price is $602.15, which implies an upside of about 6%.
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