Nvidia Shares Slip Lower On Muted Data Center Outlook After Solid Q3 Earnings

Nvidia, which is up nearly 130% for the year, said data center sales, a key growth driver, would slow modestly into the final months of the year.

Nvidia Corp.  (NVDA) - Get Report shares slipped lower Thursday after the chipmaker said capacity issues, as well as waning demand, would trim near-term revenue growth in two of its key business sectors. 

Nvidia posted overall third-quarter revenues of $4.73 billion, a 57% increase from the same period last year and firmly ahead of the Street consensus forecast of $4.4 billion. Earnings for the three months ending in September were pegged at $2.91 per share, Nvidia said, up 63% from last year and 34 cents ahead of Street forecasts.

Datacenter revenues, which comprise around half of the group's total, rose 8% on the quarter and 162% from last year to $1.9 billion, thanks in part to a big purchase from a China-based client -- likely Huawei Technologies -- and the inclusion of its recent acquisition of Mellanox, an Israel-based networking group. 

However, the group's current-quarter guidance suggested a top line of $4.8 billion, plus or minus 2%, with CFO Collette Kress also noting a decline in revenue from Mellanox, which will likely mean modestly lower sequential data center revenues.  

"We expect gaming to be up sequentially in what is typically a seasonally down quarter, as we continue to ramp up our new RTX 30 Series products. We expect data center to be down slightly versus Q3," Kress told investors on a conference call late Wednesday. "The computing products, NVIDIA computing product is expected to grow in the mid-single-digits quarter-over-quarter as we continue the NVIDIA AI adoption and particularly as A100 continues to ramp."

"Our networking, our Mellanox networking is expected to decline meaningful quarter-over-quarter as sales to that China OEM will not recur in Q4, though we still expect the results to be growth of 30% or more year-over-year," she added. "The timing of some of this business therefore shifted from Q4 to Q3, but overall H2 is quite strong."

Nvidia shares were marked 1.3% lower in pre-market trading Thursday to indicate an opening bell price of $530.00 each, a move that would still leave the stock with a more than 50% gain over the past six months.

Gaming revenues, which comprise nearly half of total sales, rose 37% from last year to $2.27 billion, Nvidia said, and will likely continue to accelerate, although Cress noted that with "industry-wide capacity constraints and long cycle times, it may take a few more months for product availability to catch up with demand."

"NVIDIA delivered on high expectations. Near term potential disappointment on the Data Center guidance, due to the pull-in from China in the Mellanox business, will likely prove to be short-lived," said BMO Capital Markets analyst Ambrish Srivastava, who carries an outperform rating with a $650 price target for the stock.