Weak gaming chip demand hurts NVIDIA’s (NVDA) first-quarter earnings

NVIDIA Corporation NVDA is scheduled to report first-quarter results for fiscal 2024 on May 24.

NVIDIA has impressed investors with its stellar financial performance and has seen strong earnings growth in the past several quarters. However, weak demand for its used chips in the endgame market has resulted in a disruption in growth momentum, as seen in the last three reported quarters.

In the fourth quarter of fiscal 2023, although NVIDIA’s revenue of $6.05 billion beat Zacks Consensus’ estimate of $6.01 billion, revenue came in 21% lower than in the year-ago quarter. The decline was primarily attributed to continued weakness in the gaming and professional visualization market segments.

Lower data center demand in China also hurt the top line in the reported quarter. Moreover, non-GAAP earnings fell 33% year over year to 88 cents a share. This trend is likely to continue in the first quarter of fiscal 2024.

NVIDIA Corporation Price and EPS Surprise

NVIDIA Corporation Price and EPS Surprise

NVIDIA price-eps-surprise | NVIDIA Corporation, quot

Smoothness is in demand for a gaming chip

NVIDIA has seen strong sales of its used chips in the end-game markets over the past two years. This was prompted by stay-at-home orders caused by the pandemic.

The demand for NVIDIA gaming chips has increased exponentially as people have been browsing games to stay engaged and entertained indoors during the lockdowns. Moreover, with the massive emergence of multiplayer online games and game-as-a-service concepts, the demand for GPUs has skyrocketed.

However, the reopening of economies, along with growing concern about a global slowdown amid the ongoing Russia-Ukraine war and the US-China trade war, has hurt demand for gaming chips.

NVDA’s revenue from the gaming marketplace platform fell 46% year-over-year in its most recent reported quarter. The year-over-year decline was mainly due to lower sales of gaming products. This reflected a decline in channel partner inventory levels amid weak demand due to macroeconomic headwinds and pandemic-related issues in China, which affected consumer demand.

We believe the trend is likely to continue in the first quarter. Zacks estimates revenue for the gaming segment to be $1.95 billion, which indicates a 46% drop from last year’s quarter’s revenue of $3.62 billion.

Zacks ranking and stocks to consider

NVIDIA is currently rated Zacks #3 (Hold). NVDA shares are up 116.8% year-to-date.

Some of the better-rated stocks from the broader technology sector are: Meta platforms meta, Manhattan Associates manh f Wix.com Wix. While Meta and Manhattan Associates both have Zacks rated #1 (Strong Buy), Wix.com has Zacks rated #2 (Buy). you can see The full list of Zacks #1 stocks today is here.

Zacks consensus estimate for Meta earnings for the second quarter of 2023 has been revised down 43 cents north to $2.87 per share in the past 30 days. For 2023, earnings estimates have been revised down 15.2% to $12.04 per share in the last 30 days.

Meta earnings have beaten the Zacks consensus estimate twice in the previous four quarters while missing the same on two occasions, the average surprise was 15.5%. META shares are up 104.9% year-to-date.

Zacks Consensus’ estimate for Manhattan Associates’ second-quarter 2023 earnings has been revised up by two cents to 72 cents per share over the past 30 days. For 2023, earnings estimates rose 17 cents to $2.87 per share in the past 30 days.

Manhattan Associates’ earnings beat the Zacks consensus estimate for the previous four quarters, and the average surprise was 33.6%. Manneh shares are up 45.1% since the start of the year.

Zacks Consensus’ estimate for Wix.com’s earnings for the second quarter of 2023 has remained unchanged at 36 cents per share over the past 60 days. For 2023, earnings estimates are unchanged at $1.49 per share in the last 60 days.

Wix.com’s earnings beat Zacks Consensus’ estimate in the previous four quarters, averaging a surprise 302%. Shares of WIX are up 5% year-to-date.

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NVIDIA Corporation (NVDA): Free stock analysis report

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Meta Platforms, Inc. (META): Free stock analysis report

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