Nvidia Q2 Earnings Preview

Can Nvidia pull a WMT and get a stock bounce from the full earnings report after warning results will be worse than expected?
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The winners and losers

In its pre-earnings release on August 8th, Nvidia said that sales would be just barely above the prior year's results (and down 19% sequentially). The company revenue from gaming was down 44%, but it was offset by a 61% increase in data center revenue.

As cloud computing has taken the lead in the post-pandemic world, Nvidia's switch to supplying data centers appears to be paying off. But, as the company transforms, it's facing a problem a lot of other firms are dealing with at the moment: inventory. In fact, Nvidia itself expects to have as much as $1.32B in extra charges for inventory and reserves.

The outlook

Where investors are likely to put their focus on is any commentary on whether the company will have to take another charge next quarter or later this year to deal with future demand problems. Nvidia signed a bunch of contracts during the semiconductor crunch, while there was high demand for gaming rigs that would actually be used for mining. Now the question is whether data center growth will persist, and keep offsetting weaker gaming sales.

The other issue that wasn't mentioned yet but is likely to get attention because of the cost implications, is how Nvidia's foray into the metaverse is going. Particularly how much spending is expected, or if the company will be paring back its commitments in light of the economic situation. That will likely play into Q3 guidance, which could be pivotal for whether the stock bounces after earnings.

Nvidia is expected to report earnings of $0.49 on $6.7B in sales.

NVIDIA eyes 50 SMA

Key takeaways
Nvidia said it was expecting to report earnings barely above last year’s as the increase in data center sales offset the revenue from gaming losses. However, the company faces a $1.32 billion inventory and reserves charge.

Investors will be interested in the possibility that Nvidia will have to take another charge next quarter or later this year due to future demand problems and whether it can keep offsetting falling gaming sales with rising demand in data center sales.

Also, Nvidia's spending on the Metaverse is likely to be a big challenge to revenue in the near term and could impact Q3 guidance and stock valuation.