Why Nvidia Shares Are Stumbling

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Nvidia Corp. (NASDAQ: NVDA) shares dropped on Monday after the company updated its guidance for its fourth quarter. Ultimately, this update reflects weaker than forecast sales of its Gaming and Datacenter platforms.

In Gaming, Nvidia’s previous fourth-quarter guidance had embedded a sequential decline due to excess mid-range channel inventory following the crypto-currency boom. The reduction in that inventory and its impact on the business have proceeded largely in line with management’s expectations.

In Datacenter, revenue also came in short of expectations. A number of deals in the company’s forecast did not close in the last month of the quarter as customers shifted to a more cautious approach. Despite these near-term headwinds, Nvidia has a large and expanding addressable market opportunity in artificial intelligence and high-performance computing, and the company believes its competitive position is intact.

Looking ahead to the fourth quarter, the company expects to see revenues of roughly $2.20 billion, down from $2.7 billion. Consensus estimates from Thomson Reuters are calling for $1.40 in EPS and $2.7 billion in revenue.

Jensen Huang, founder and CEO of Nvidia, commented:

Q4 was an extraordinary, unusually turbulent, and disappointing quarter. Looking forward, we are confident in our strategies and growth drivers.

The foundation of our business is strong and more evident than ever – the accelerated computing model NVIDIA pioneered is the best path forward to serve the world’s insatiable computing needs.  The markets we are creating – gaming, design, HPC, AI and autonomous vehicles – are important, growing and will be very large. We have excellent strategic positions in all of them.

Shares of Nvidia were last seen down about 14% at $137.40, in a 52-week range of $124.46 to $292.76. The stock has a consensus analyst price target of $227.18.