Semiconductor Slump: Nvidia Takes A Hit Even As It Remains Optimistic, Thanks To Potential Bright-Spots

Nvidia is America's largest chipmaker by market cap. They reported earnings two weeks back.

As a result of the current semiconductor slump, some of the company’s Q2 numbers missed the mark.

It is important to note that weeks the earnings call, Nvidia had already lowered its estimates.

Despite already lowering its estimates, Nvidia still fell short on earnings per share. It also fell short on Q3 revenue expectations, which, at $5.9 billion, fell $1 billion short of Wall Street analysts’ predictions.

Nvidia's net income has dropped 72 per cent year over year, to $656 million.

Colette Kress, Nvidia’s EVP and CFO, said "this was a challenging quarter" during the earnings call.

According to reports, shares fell by 8 per cent in a continuation of post-earnings report selloff.

Nvidia's gaming business has been hard by a drop in demand for hardwares like graphic cards and PCs.

Nvidia's gaming revenue has dropped 44 per cent from Q1 and 33 per cent year over year. Kress admitted that the decline was "sharper than anticipated."

However, not all is gloom and doom for the company. The company's data-centre business is a potential bright spot on Nvidia's balance sheet.

The data centre business grew 61 per cent year over year. Although Nvidia has admitted that its $3.81 billion revenue still fell short of the company's expectations. Supply-chain issues might have contributed to this.

The data-centre business's growth is largely driven by North America cloud-computing giants. For example, Pinterest started using 100X larger AI recommender models after it began using Nvidia's GPUs. Tesla has also “upgraded its supercomputer to use over 7,000 A100 GPUs for autopilot training,” according to Kress.

Unfortunately for Nvidia, the boost in North American sales was offset by lower sales to China.

The company is also optimistic about Nvidia's next-gen H100 compute GPU. It is now in full production and will add to Nvidia's data centre segment's growth.

Its underlying architecture is Hopper, which, according to reports, is designed "to help train transformer-based large language models, the same kinds of AI models that underpin services like Google Search and Autocomplete."

Another potential bright spot that provides hope to Nvidia is its automotive business. Thanks to self-driving sector revenue, it has a revenue of $220 million and grew up by 45 per cent year over year.

Nvidia in recent times has announced new vehicle partnerships with Chinese EV makers like NIO, Li Auto, and Baidu-owned Jidu.