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Analysts see 'more questions than answers' for Nvidia's earnings

Key Points
  • Analysts are looking for clarity on China, data centers and gaming revenue.
  • "Our investor conversations suggest a wide range of views on the outlook," writes Goldman Sachs Toshiya Hari.
  • "We expect Nvidia shares to remain range bound," Deutsche Bank's Ross Seymore says.
Jensen Huang, CEO of Nvidia 
Rick Wilking | Reuters

A little over two weeks after Nvidia issued a negative earnings pre-announcement, analysts expectations continue to be very low for the gaming-card company when it reports after the bell Thursday.

Nvidia surprised investors and analysts on Jan. 28 citing macro deterioration in China, data center issues and weaker sales than expected.

The stock has lost almost half its value in the last four months alone. However, since the pre-announcement Nvidia is up 10 percent at $153.91 heading into Thursday trading.

Despite the recent rise in shares, many analysts still remain conflicted on the stock.

Bernstein analyst Stacy Rasgon recently downgraded and lowered his price target noting, "Since the pre-announcement 2 weeks ago we have struggled with what to do with the stock, and have used the time to think through more broadly what the near to mid-term trajectory might bring. Coming out, we believe the shares are likely to remain hamstrung."

"There are more questions than answers around this quarter, given the nearly $1 billion shortfall vs. January quarter consensus of 3 months ago," Morgan Stanley analyst Joseph Moore said. He went on to say, "We see the stock as a core holding but it's hard to argue for a large overweight position until visibility improves."

Kirk Materne at Evercore ISI, pointed out in his analyst preview note that, "Investor sentiment is clearly very negative with management losing some credibility on the magnitude of the recent reset. But we think this will eventually pass. We believe mgmt. fundamentally misunderstood the negative adverse impact of Crypto." They also think investors may eventually be rewarded for sticking with the stock.

Other analysts are taking more of a wait and see approach. "We think NVDA stock is range bound for the print and we wait for clarity on 2H." RBC's Mark Mahaney said.

"Overall tough fundamental set-up, but we think investor sentiment is even weaker, and some reassurance on sales recovery could be a contrarian positive for the stock," said Vivek Arya at Bank of America. He did note that this is an "enhanced opportunity" to buy Nvidia shares.

Here's what else analysts expect:

Morgan Stanley - equal Weight Rating

"There are more questions than answers around this quarter, given the nearly $1 billion shortfall vs. January quarter consensus of 3 months ago (before the October quarter was reported)....We do see temporary factors impacting the January results, and think that numbers can gradually improve from here - we see gaming bottoming in the January quarter below $1 bn, and recovering back to $1.4 bn by the end of 2019, and we see HPC cloud resuming growth next quarter as we move past this digestion phase and getting back to 30% y/y comparisons again by calendar 4Q19....When the dust clears we still believe that the company has a strong position in its core markets, with exciting potential in data center but as with the semiconductor group we have been surprised at the share price recovery in light of these questions... We see the stock as a core holding but it's hard to argue for a large overweight position until visibility improves..."

Bernstein - market perform rating

"Since the pre-announcement 2 weeks ago we have struggled with what to do with the stock, and have used the time to think through more broadly what the near to mid-term trajectory might bring... Coming out, we believe the shares are likely to remain hamstrung...While painful, we could have lived with the inventory flush NVDA called out in their first Nov gaming cut. But the latest cut appears much more fundamentally demand-driven, with the question of the "true" run-rate of the gaming business remaining up in the air for now....We still believe in the long-term datacenter story... And tactically the near-term cloud spending environment is unfavorable, driving near-term downside...Investors should see how much the company is under-shipping fundamental demand in gaming (we think 25 -40%) and mgmt. should provide some much needed context for the data center deferrals..."

Bank of America - buy rating

"Overall tough fundamental set-up, but we think investor sentiment is even weaker, and some reassurance on sales recovery could be a contrarian positive for the stock... We reiterate our Buy rating and see an enhanced opportunity to buy the stock ahead of the March 17 analyst day/GPU Tech Conference.."

Evercore ISI - outperform rating

"As for shares, investor sentiment is clearly very negative with management losing some credibility on the magnitude of the recent reset... But we think this will eventually pass... We believe mgmt. fundamentally misunderstood the negative adverse impact of Crypto...Layer in macro-driven volatility and slowdown in Consumer demand in China, and Gaming has now been guided down $1.3B - a big haircut... While the near-term is tricky, we think the current multiple is largely discounting an adverse outcome, and giving them ZERO credit for a strong first mover advantage in AI coupled with the CUDA ecosystem and platform... We believe longer-term investors will be rewarded for sticking with the company this year..."

Goldman Sachs - buy rating

"We reflect disappointing sell-through of high-end gaming GPUs and the ongoing 'pause' in server purchases by hyperscale customers...We maintain our Buy rating with 9% upside to our revised $162 (from $184) price target as we remain believers of the company's long-term secular growth opportunity – led by PC Gaming, AI training/inference, and ADAS/AD... However, our investor conversations suggest a wide range of views on the outlook..."

RBC - outperform rating

"After negatively pre-announcing revenues (citing China softness) we think the focus is shifting to 1) core gaming revenue ex-switch and ex-crypto along with 2) competition from new chips in the Data Center and Nvidia's revenue growth rate going forward within that segment....While gaming is expected to be down, the Data Center miss is a question of magnitude where investors appear to sit around ~$650M with a wide range around it... After working through growth rates and end-demand trends here we think the second most topical item will be the inventory flush and Turing game launches in 2H... Overall, given that these focal points are longer term in nature, we think the stock will be range bound..we think NVDA stock is range bound for the print and we wait for clarity on 2H..".

Deutsche Bank - hold rating

"Beyond the quarterly results/guide, the two key questions remain: 1) What is the long-term growth potential for Gaming, especially if ray-tracing & ASP increases are not tailwinds? and 2) Is the disappointment in Datacenter a one-time issue (CSP pause to digest) or a bigger concern (rising competition from ASICs/AMD, transition from training spending to inference etc.)... Until we have clearer answers to these questions, we expect NVDA shares to remain range bound..."