Nvidia jumps after beating on earnings and revenue

  • The company beat expectations on the top and bottom lines after providing updated guidance last month.
  • Nvidia's recent inventory issues appear to have worsened sentiment in the company supply chain.

Shares of chipmaker Nvidia rose as much as 8 percent on Thursday after the company reported better-than-expected earnings for the fourth quarter of its 2019 fiscal year.

Here are the key numbers:

  • Earnings: 80 cents per share, excluding certain items, vs. 75 cents per share as expected by analysts, according to Refinitiv.
  • Revenue: $2.21 billion, vs. $2.20 billion as expected by analysts, according to Refinitiv.

Revenue was down 24 percent year over year in the quarter, which ended on Jan. 27, according to a statement.

Nvidia shares are up 15 percent since the beginning of the year, but in the past year the stock is down 36 percent.

"This was a turbulent close to what had been a great year," Nvidia CEO Jensen Huang said in the company's press release. "The combination of post-crypto excess channel inventory and recent deteriorating end-market conditions drove a disappointing quarter."

The company disclosed excess inventory one quarter ago. On Jan. 28, Nvidia released updated fiscal fourth-quarter guidance indicating that gaming and data center revenue were below the company's expectations.

"Hyperscale and cloud purchases declined both sequentially and year-on-year as several customers paused at the end of the year," Nvidia's chief financial officer, Colette Kress, said on a conference call with analysts on Thursday. "We believe the pause is temporary."

The largest cloud providers, like Amazon and Microsoft, already offer Nvidia graphics processing units (GPUs) that can be used to train artificial-intelligence models using lots of data. Now Nvidia is working closely with such companies on adoption of its GPUs for inference, a later stage in the AI process, Kress said.

Analysts from Raymond James said sentiment from the supply chain turned more negative.

"Gaming sales naturally continue to be impacted by the significant inventory overhang," the analysts wrote in a Jan. 28 note. "That inventory reduction has been impacted by slower sell-through, particularly in China."

In the fiscal fourth quarter Nvidia announced the availability of the GeForce RTX 2060 graphics card for PC gaming.

With respect to guidance, Nvidia said it's expecting $2.20 billion in revenue, plus or minus 2 percent, in the first quarter of its 2020 fiscal year. The midpoint is below the $2.28 billion Refinitiv estimate, and it would reflect a revenue decline of 31 percent.

The company believes fiscal year 2020 revenue will be "flat to down slightly." Analysts polled by Refinitiv were expecting a 7 percent revenue decline for that period. Kress said Nvidia expects the fiscal first quarter to be the bottom of the excess inventory issue for gaming GPUs.

Jim Kelleher, an analyst at Argus research, described Nvidia's situation as a "near-perfect storm," because of higher inventory, the launch of an expensive product and "a one-time runoff in crypto-related inventory." Kelleher has a buy rating on Nvidia.

Correction: This report previously misstated analyst estimates for Q4 revenue in Nvidia's business segments.