Nvidia stock drops as China COVID shutdowns weaken outlook

Nvidia Corp. shares fell in the extended session Wednesday after COVID shutdowns in China and the war in Ukraine shaved half a billion dollars off the chip maker’s outlook for the current quarter, while the company reported record results.

Nvidia
NVDA,
+5.08%

shares fell more than 7% after hours, following a 5.1% rise in the regular session to close at $169.75.

For the fiscal second, or current, quarter, Nvidia forecast revenue of $7.94 billion to $8.26 billion, while analysts surveyed by FactSet have forecast revenue of $8.4 billion on average. “This includes an estimated reduction of approximately $500 million relating to Russia and the COVID lockdowns in China,” Nvidia said in a statement.

That’s similar to Cisco Systems Inc.
CSCO,
+0.53%
,
which reported its earnings this past week and has an April-ending quarter like Nvidia. Cisco noted that it was broadsided after Chinese authorities locked down Shanghai starting on March 27, which threw a monkey wrench into its ability to get components. As a result, Cisco issued a poor outlook and shares saw their worst day in more than a decade.

“We estimate the impact of lower sell-through in Russia and China to affect our Q2 gaming sell-in by $400 million,” said Colette Kress, Nvidia’s chief financial officer, on the call with analysts. “Furthermore, we estimate the absence of sales to Russia to have a $100 million impact on Q2 in data center.”

Meanwhile, Nvidia’s first-quarter data-center sales surged 83% to a record $3.75 billion from $2.05 billion in the year-ago period, while analysts had expected $3.6 billion.

Gaming sales rose 31% to a record $3.62 billion from $2.76 billion, while analysts surveyed by FactSet had expected Nvidia gaming sales of $3.46 billion. Gaming revenue, however, is expected to pull back in the current quarter, further weakening Nvidia’s outlook.

“As we expect ongoing impact, as we prepare for a new architectural transition later in the year, we are projecting gaming revenue to decline sequentially in Q2,” Kress said. “Channel inventory has nearly normalized and we expect it to remain around these levels in Q2.”

“Data center has become our largest market and we see continued momentum going forward,” she added. “Customers remain supply constrained in their infrastructure needs and continue to add capacity as they try to keep pace with demand.

Nvidia reported first-quarter net income of $1.62 billion, or 64 cents a share, compared with $1.91 billion, or 76 cents a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were $1.36 a share, compared with 91 cents a share in the year-ago period. All figures are adjusted for last year’s 4-for-1 stock split.

Revenue surged to a record $8.29 billion from $5.66 billion in the year-ago quarter.

Analysts had forecast $1.30 a share on revenue of $8.12 billion, based on Nvidia’s forecast of $7.94 billion to $8.26 billion.

Read: The end of one-chip wonders — Why Nvidia, Intel and AMD’s valuations have experienced massive upheaval

“We delivered record results in data center and gaming against the backdrop of a challenging macro environment,” said Nvidia Chief Executive Jensen Huang in a statement. “We are gearing up for the largest wave of new products in our history with new GPU, CPU, DPU and robotics processors ramping in the second half. Our new chips and systems will greatly advance AI, graphics, Omniverse, self-driving cars and robotics, as well as the many industries these technologies impact.”

Read: Why semiconductor stocks are ‘almost uninvestable’ despite record earnings amid a global shortage

Nvidia results follow those from major chip makers like Advanced Micro Devices Inc.
AMD,
+1.63%
,
Intel Corp.
INTC,
+1.27%

and Qualcomm Inc.
QCOM,
+2.10%
,
while Broadcom Ltd.
AVGO,
+1.42%

is scheduled to report on June 2.

Over the past 12 months, Nvidia shares are up 8%, while at the same time nearly 50% off their record closing high of $333.76 set on Nov. 29. In comparison, the PHLX Semiconductor Index
SOX,
+1.98%

is down 8% over the past 12 months, the S&P 500 index
SPX,
+0.95%

is down 5%, and the Nasdaq Composite Index
COMP,
+1.51%

is off 16%.

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