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Bear of the Day: NVIDIA (NVDA)


Nvidia (NVDA) stock skyrocketed from the summer of 2015 until it dropped quickly in the fall of 2018 as investors grew more concerned about the company and the larger semiconductor industry. Now, the chip firm looks to be headed in the wrong direction for its upcoming fourth-quarter and the following fiscal year.

Recent News

News spread quickly Wednesday that SoftBank’s (SFTBY) roughly $100 billion Vision Fund sold all of its NVDA shares. The Japanese firm locked in returns of $3.3 billion on its nearly 5% stake in Nvidia. The announcement highlighted Nvidia’s precarious position as the broader chip market suffers from US-China trade war worries.


The company has been a leader in gaming-focused graphics chips. Nvidia has in recent years expanded into data centers, cloud computing, artificial intelligence, and machine learning. Nvidia also last year launched new GPUs based on its much-anticipated Turing architecture.

Nvidia said that Turing had received the fastest adoption of any server GPU in history, including from the Google Cloud Platform (GOOGL). But none of this has seemed to matter for Nvidia lately because, like Advanced Micro Devices (AMD) and other chipmakers, it has taken a hit from the downturn in cryptocurrency-related demand. Plus, the chip industry is historically cyclical.

More importantly, Nvidia on January 28 added to the list of Wall Street standouts that dramatically lowed their holiday quarter guidance, along with the likes of Apple (AAPL). The company dropped its Q4 revenue projection by roughly 19% from $2.70 billion to $2.20 billion and said it expects its gaming and datacenter revenues to come in below its previous expectations.

Stock Price Movement

Shares of the graphics chip designer have lost nearly half their value since their October 2018 peak. This massive downturn to close the year hasn’t been followed by a post-Christmas rally like other big names such as Facebook (FB). NVDA stock has now plummeted 33% over the last year and hovered at around $153 share Wednesday.

Nvidia’s 12-month performance is actually slightly better than its peer group’s average decline, which includes Texas Instruments (TXN) and industry powerhouse Intel (INTC). We can also see that NVDA stock has destroyed its industry over the last 25 years, which makes it plausible that this downturn ends up looking more like a small drop in the long-run.

Outlook & Earnings Trends

Moving on, our current Zacks Consensus Estimate calls for NVDA’s fourth-quarter fiscal 2019 revenues to fall 18.6% from the year-ago period to hit $2.36 billion. This would mark Nvidia’s first revenue decline in more than five years and stand in stark contrast to Q3’s 21% top-line expansion, Q2’s 40% climb, and Q1 66% jump.

Meanwhile, Nvidia is expected to see its adjusted quarterly earnings plummet over 56% to touch $0.75 a share. Peaking a bit further ahead, Nvidia’s fiscal 2020 EPS figure is projected to come in 20% below our 2019 estimate. The big downturn comes on the back of Nvidia’s subdued guidance, which sparked a ton of downward earnings estimates revisions from analysts.

The chart below shows investors just how much NVDA’s bottom-line outlook has deteriorated over the last 30 days, which is rarely a sign of good things to come.

Bottom Line

Nvidia is currently a Zacks Rank #5 (Strong Sell) based in large part on its negative earnings estimate revision activity. The company is scheduled to release its Q4 fiscal 2019 financial results on Thursday, February 14.

In the end, investors interested in Nvidia might want to wait on the company’s Q1 guidance because as CEO Jensen Huang said in a recent statement “Q4 was an extraordinary, unusually turbulent, and disappointing quarter.”

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