Nvidia Bulls See AI Boost Offsetting PC Slump


Nvidia (NVDA) heads into its quarterly results after the closing bell Wednesday with Wall Street counting on significant growth over the next year, even as rivals AMD (AMD) and Intel (INTC) have already warned the downturn in demand for their chips will persist for months.

Key Takeaways

  • Nvidia is expected to post fourth-quarter earnings of 81 cents per share late Wednesday, down from $1.32 a year earlier.
  • Analysts expected revenue to drop 21% year-over-year, in line with the company’s forecast.
  • Street estimates assume Nvidia’s annual revenue will grow 9% in the new fiscal year.
  • The company’s data center solutions for artificial intelligence applications should help counter the effects of the economic slowdown, several analysts said this week.

The chip maker’s outlook for the current quarter and fiscal year could overshadow its fiscal fourth-quarter results, which are expected to show minimal growth in what is typically the company’s strongest quarter of the year. Analysts tracked by Visible Alpha estimate adjusted earnings per share of 81 cents on average, down from $1.32 a year earlier. The consensus estimate for revenue of $6 billion, in line with Nvidia’s November forecast, would represent an annual decline of 21% and an increase of 1.5% from the third quarter.

Nvidia’s gaming segment revenue from PC processors is expected to fall 53% year-over-year to $1.6 billion, roughly in line with the third quarter’s 51% drop in gaming revenue. In posting its second consecutive earnings miss in Q3, Nvidia cited COVID lockdowns in China and Ethereum’s shift away from a proof-of-work verification model dependent on processing power, headwinds that may have abated more recently, for the slowdown in PC revenue.

Nvidia expects data center sales to benefit over the long haul from artificial intelligence applications, which require more processing power, and analysts expect AI demand to temper the effect of a tech spending slowdown on the company’s near-term results. Data center revenue is predicted to climb 19% to $3.9 billion in the fourth quarter, offsetting some lost gaming revenue.

Nvidia’s “full-stack of accelerated silicon/systems/software/developers positions it uniquely to lead the nascent generative AI arms-race among global cloud and enterprise customers,” wrote Bank of America analysts Monday in boosting their price target on the stock to $255 from $215, while reiterating a Buy rating.

KeyBanc and Oppenheimer analysts also cited the expected boost from AI in lifting their share price targets for Nvidia this week, with KeyBanc’s rising to $280 from $220 and Oppenheimer’s to $250 from $225. “We see sustained outsized data center growth driven by increasing industry adoption of AI workloads, enhanced by generative AI workload,” said KeyBanc.

Nvidia shares surged 45% in 2023, recouping not quite half of the value it lost last year. Over the past year, the stock is down 13% compared with a 10% drop for the S&P 500 Information Technology Sector Index (see chart below).

Nvidia Share Price vs. S&P 500 IT Sector Index, Past Year

Source: TradingView.

Nvidia Key Stats

  Estimate for Q4 FY 2023 Q4 FY 2022 Q4 FY 2021
Adjusted Earnings Per Share ($) 0.81 1.32 0.78
Revenue ($B) 6.0 7.6 5.0
Revenue – Data Center ($B) 3.9 3.3 1.9

Source: Visible Alpha