NVIDIA’s Third Quarter Is A Bloodbath – But Shares Up As Gaming, Data Center Beat Estimates

Ramish Zafar
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Chipmaker NVIDIA Corporation reported its earnings results for the third fiscal quarter of 2023 at the close of the market today, with the firm managing to meet its revenue guidance that it had set during the previous quarter. NVIDIA, like other personal computing technology firms, has suffered the brunt of the inflationary wave this year, with the firm's Gaming division that accounts for its largest segment and sales to gamers and other users posting painful drops.

NVIDIA reported $5.9 billion in revenue and $680 million in earnings per share for the quarter, with both marking significant annual drops. For its fourth fiscal quarter, the firm expects to rake in $6 billion in revenue, which will reverse this quarter's sequential drop to mark a small growth. However, annually, the revenue will still drop.

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Heading into today's earnings report, Wall Street analysts had expected NVIDIA's revenue to sit at $5.8 billion and its earnings per share to come in at 70 cents per share. However, while the company managed to beat the revenue estimates by a hairline, its earnings per share reading came in at a jaw-dropping 27 cents per share. This marked a one-cent increase over the previous quarter, but a stunning 50-cent drop over the year-ago quarter.

A cursory look at NVIDIA's income statement shows that the firm's operating expenses are to blame for the earnings per share drop. These 'blossomed' by 31% annually, at a time when the chip designer's revenue tanked by 17%. Overall, the income statement does not paint a pretty picture at all, as NVIDIA's operating income, net income and earnings per share have dropped by a rather outlandish 77%, 72%, and 72%, respectively. These are the GAAP results, and the non-GAAP results show that the EPS dropped by 50% - still not a pretty picture. The adjusted EPS stood at 58 cents, and this is the one that is compared to the analyst estimates.

NVIDIA's segment breakdown for its Q3 2023 revenue. Image: NVIDIA

Crucially, however, and one reason that NVIDIA's shares are up in aftermarket trading, is the fact that its data center and gaming revenue came above estimates. Datacenter continued to be NVIDIA's saving grace in the quarter, as it stressed the need for any company to diversify its revenue streams. The official results show that the revenue for this segment stood at $3.9 billion, marking yet another quarter that proved that NVIDIA is now a data center company instead of a gaming one. NVIDIA had warned in its previous quarter that gaming revenues were expected to drop. Analysts had pegged gaming revenue at $1.42 billion and data center at $3.72 billion.

Data center revenue was $3.9 billion, accounting for more than half of NVIDIA's overall net sales, as it managed to stay flat sequentially but grow by an impressive 31% annually. This growth comes at a time when spending in the sector seeing worries of a slowdown - due to inflation and the upgrade cycle already being behind most big spenders. However, the data center segment is also currently trying to navigate the fresh U.S. sanctions against China. These have limited NVIDIA from selling its top data center and machine learning graphics processing units (GPUs) to the country; however, NVIDIA is reportedly looking to salvage its China business by offering a new product that meets U.S. government regulations.

Another painful component of NVIDIA's latest earnings release is the firm's cash flow, which has dropped significantly as well. Its free cash flow represented an outflow of $156 million, while in the year-ago quarter it had stood at a whopping $1.28 billion, and at $824 million in the previous quarter. NVIDIA's chief financial officer Ms. Colette Kress blamed the dismal free cash flow performance on inventory and supplier problems. For comparison, AMD reported a positive cash flow in its latest earnings release.

For the current quarter, NVIDIA aims to bring in $6 billion in revenue. The firm's shares are up by 2% in aftermarket trading at the time of publishing.

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