Multiple Negative Overlap, the Stock Price Continues to Fall, NVIDIA is Still the Star Stock of the Chip Industry?
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On August 24, $NVIDIA(NVDA.US$ announced its weak 2Q results, with revenue down 51% YoY, and the company expects an even worse performance in 3Q. The poor performance sent NVIDIA shares further down, having fallen more than 42% YTD. On August 31, NVIDIA announced that the US government has imposed a new license requirement on A100 and H100 GPUs sold to China and Russia.
Key takeaways:
1. Financial Statement Summary
NVIDIA reported F2Q23 revenue of $6.704B (down 19% Q/Q).
(1) Gaming revenue of $2.04B (down 44% Q/Q, down 33% Y/Y) was soft on weak demand/lower sell-in driven by pricing/inventory adjustments in the channel. JP Morgan believes the team is prudently and rapidly flushing excess inventories.
(2) Data Center revenue of $3.81B (up 1% Q/Q and up 61% Y/Y) was driven by strong cloud spending (doubled Y/Y on strong North America hyperscalers), continued enterprise/vertical market adoption (grew Q/Q) but impacted by supply chain constraints.
(3) In Auto (up 59% Q/Q), demand inflected higher in the Jul-Qtr as the $11B+ automotive revenue pipeline begins to unfold and JP Morgan sees continued sequential growth in the second half of the year.
With shares down 40% YTD, strong multiple compression (~50%), and de-risked EPS estimates (FY24 EPS estimates cut by 40% over the last 2 earnings cycle), JP Morgan believe this puts a bottom in the stock. JP Morgan anticipates significant upside in the shares, driving an Overweight rating.
2. the US government has imposed a new license requirement on GPUs sold to China and Russia
On August 31, NVIDIA announced that the US government has imposed a new license requirement on A100 and H100 GPUs sold to China and Russia. NVIDIA indicated this would reduce revenue by ~$400 million in the 3Q. This event is undoubtedly adverse for NVIDIA's share price. Attention can be paid to Jingjia Micro, Loongson Technology, Hygon.
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