Nvidia sees brief pop after earnings beat

Key Points
  • The company's revenue dropped 31% year over year, with the key gaming segment falling 39%.
  • Nvidia shares have climbed 20% this year, but the stock is still 45% below its high from 2018.
Nvidia CEO Jensen Huang speaks at a press conference on Jan. 7, 2018.
MANDEL NGAN | AFP | Getty Images

Chipmaker Nvidia saw shares rise as much as 7% and then scale back on Thursday after it reported better-than-expected earnings for the first quarter of fiscal 2020.

Here are the key numbers:

  • Earnings: 88 cents per share, excluding certain items, vs. 81 cents per share as expected by analysts, according to Refinitiv.
  • Revenue: $2.22 billion, vs. $2.20 billion as expected by analysts, according to Refinitiv.

Nvidia said in a statement that revenue declined some 31% year over year in the quarter, which ended on April 28. Revenue has now fallen for two quarters in a row.

The first-quarter decline had to do with the "absence" of $289 million in revenue from graphics processing units for mining cryptocurrencies, in addition to performance in the gaming and data center markets, Nvidia said.

Net income in the quarter excluding certain items fell to $543 million, or 88 cents per share, from $1.29 billion, or $2.05 per share.

With respect to guidance, Nvidia is calling for revenue of $2.55 billion, plus or minus 2%, in the fiscal second quarter, which implies a year-over-year decline of 18.3%. Analysts surveyed by Refinitiv were looking for $2.54 billion in fiscal second-quarter revenue.

"Our Q2 outlook is somewhat lower than our expectation earlier in the quarter, when our outlook for fiscal 2020 revenue was flat to down slightly from fiscal 2019," Nvidia's chief financial officer, Colette Kress, told analysts on a Thursday conference call. "The Data Center spending pause around the world will likely persist in the second quarter and visibility remains low."

Kress also pointed to challenges Nvidia faces in gaming.

"A CPU shortage, while improving, will affect the initial ramp of our laptop business," said Kress, who said the company won't be providing full fiscal year guidance.

Following those comments Nvidia's stock moved lower but did not lose all of its post-earnings gains.

Kevin Cassidy of Stifel wrote in a Monday note that Nvidia likely cleared out channel inventories in the quarter for its graphics processing units for gaming. Revenue in Nvidia's gaming business segment will be down 14% in the full 2020 fiscal year, "due to a challenging beginning of the year and increased competition pressuring" prices, Cassidy wrote.

Kress did address the channel inventory issue on the call.

"Going forward, we will probably reach normalized levels for gaming, somewhere between Q2 and Q3, similar to our discussion that we had back at Analyst Day, at the beginning of the quarter," she said.

Nvidia said its gaming segment exited the quarter with $1.06 billion in revenue, down 39% year over year but above the $933.5 million consensus among analysts polled by FactSet.

The company's Data Center business segment had revenue of $634 million, less than the $663.7 million FactSet consensus estimate. Kress said there was a slowdown in spending on among so-called hyper-scale providers -- companies that operate popular online services for consumers or cloud infrastructure for third-party developers.

"While demand from some hyperscale customers bounced back nicely, others paused or cut back," Kress said. "Despite the uneven demand backdrop, the quarter had significant positives."

The Professional Visualization business contributed $266 million in revenue, lower than the $290 million estimate, while Automotive came in barely bigger than the $164 million revenue estimate, at $166 million.

Nvidia's stock is up 20% since the beginning of the year, but is still about 45% off its record high reached in October.

In March, Nvidia announced its intent to buy Israeli networking hardware company Mellanox for almost $7 billion to help boost its data center business.

WATCH: Nvidia CEO Jensen Huang on Mellanox acquisition

Nvidia CEO Jensen Huang on Mellanox acquisition
Nvidia CEO Jensen Huang on Mellanox acquisition