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Nvidia Stock Skids As Muted Gaming Sector Outlook Offsets Q1 Earnings Beat

"As we look into the second half of the year, it's hard to predict exactly when COVID and the war in Russia is going to be behind us," said CEO Jensen Huang.

Updated at 9:51 am EST

Nvidia  (NVDA) - Get NVIDIA Corporation Report shares slumped lower Thursday after the chipmaker issued a muted near-term outlook for the sale of its gaming chips that took the gloss off a solid set of first quarter earnings.

Nvidia, which makes both data center and gaming sector chips -- some of which are used for cryptocurrency mining -- posted Street-beating earnings of $1.36 per share for its April quarter last night as overall revenues rose 46% from last year to record $8.29 billion.

Data center revenues were up a staggering 83% from last year to $3.75 billion, while gaming sector revenues rose 31% to a record $3.62 billion. 

Looking ahead, however, Nvidia said current quarter revenues would come in at around $8.1 billion, plus or minus 2%, a tally that fell shy of analysts' estimates thanks in part to weakness in the gaming sector, where revenue "will probably decline in the teens", according to CFO Colette Kress.

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"The underlying dynamics of the Gaming industry is really solid, net of the situation with COVID lockdown in China and Russia," CEO Jensen Huang told investors on a conference call late Wednesday. "As we look into the second half of the year, it's hard to predict exactly when COVID and the war in Russia is going to be behind us."

Nvidia shares were marked 0.13% lower in early Thursday trading to change hands at $170.32 each, a move that would extend the stock's year-to-date decline to around 44%.

Earlier this month, video-game maker Electronic Arts  (EA) - Get Electronic Arts Inc. Report said current quarter sales would likely slide to around $1.44 billion as gamers spend few hours in front of their consoles in a post-pandemic world.

The forecast was also complicated by the loss of its three-decade long agreement with FIFA, the governing body for world football, that was reportedly worth around $150 million a year.

Activision Blizzard  (ATVI) - Get Activision Blizzard Inc Report has also warned that softer demand for its latest Call of Duty franchise would clip current quarter sales, and reported in April that monthly active users fell 14.5% from last year to 372 million, taking in-game billings down 24.6% to $1.01 billion amid weaker-than-expected demand for its Call of Duty: Vanguard release.

"Nivdia indicated gaming end demand remains solid, despite some Europe and China softness," said KeyBanc Capital Markets analyst John Vinh, who carries an 'overweight' rating on the stock but reduced his price target by $60, to $250 per share, following last night's earnings.

"Management expects gaming demand in China to recover once lockdowns ease, and indicates Russia represents 2% of total revenues and slightly higher for gaming," he added. "Data center demand remained strong, with hyperscale and cloud more than doubling y/y, and vertical industries growing strong double-digit percentage y/y."