Nvidia stock jumps as earnings, forecast come in better than expected

Nvidia Corp. shares jumped in after-hours trading Wednesday, as the graphics-chip specialist sold more gaming chips and projected stronger revenue than Wall Street was expecting, suggesting an inventory glut may be clearing.

reported fourth-quarter net income of $1.41 billion, or 57 cents a share, compared with $3 billion, or $1.18 a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were 88 cents a share, compared with $1.32 a share in the year-ago period. Revenue fell to $6.05 billion from $7.64 billion in the year-ago quarter.

Analysts surveyed by FactSet had forecast 81 cents a share on revenue of $6.02 billion. Shares jumped more than 7% after hours, following a 0.5% gain in the regular session to $207.54.

Nvidia forecast first-quarter revenue of $6.5 billion, or 2% on either side of that guidance. Analysts on average were estimating earnings of 85 cents a share on revenue of $6.31 billion for the first quarter.

Read: Nvidia earnings overshadowed by Microsoft, ChatGPT, OpenAI, 10-year gaming partnership

Data-center sales rose 11% to $3.62 billion from a year ago, missing analysts’ average forecast of $3.85 billion. Nvidia’s data-center business has been a main driver for the stock in recent years, but a recent slowdown in cloud computing has created concern about the near-term growth of the business, while advances in artificial intelligence have boosted hopes for the future.

“Our research … illustrates expectations for a 3% decline in spending from the top seven cloud-service providers, in aggregate, in 2023. This downtick follows roughly 33% growth in 2022 and 26% growth in 2021,” Stifel analysts wrote in a preview of the report this week. “While we expect AI-focused investments to remain a priority and potentially escalate as competition heats up, we remain wary of expectations for significant slowing in overall data-center capex spending in 2023.”

Gaming sales reached $1.83 billion, while analysts on average were expecting $1.59 billion, according to FactSet. Nvidia’s gaming business may receive a boost from a recent deal with Microsoft Corp.
which is trying to close a $69 billion acquisition of Activision Blizzard Inc.
but the company has been dealing with an inventory glut after struggling with supply earlier in the COVID-19 pandemic.

Read: Microsoft teams up with Nvidia and Nintendo in 10-year deal to stream Xbox games

“We expect overall gaming segment growth to remain modest following a multi-quarter inventory rebalance,” the Stifel analysts wrote Monday, while maintaining a “hold” rating and increasing their price target to $207 from $175.

Over the past 12 months, Nvidia shares have declined about 12%, while the Dow Jones Industrial Average 
 has slipped 2%, the S&P 500 index
has declined 7%, and the tech-heavy Nasdaq Composite Index
has fallen 14%.