No Surprises In Nvidia's (NASDAQ:NVDA) Q2 Sales Numbers But Quarterly Guidance Underwhelms

Adam Hejl /
2022/08/24 4:29 pm EDT
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Leading designer of graphics chips Nvidia (NASDAQ:NVDA) reported results in line with analyst expectations in Q2 FY2023 quarter, with revenue up 3.02% year on year to $6.7 billion. However, guidance for the next quarter was less impressive, coming in at $5.9 billion at the midpoint, being 14.7% below analyst estimates. Nvidia made a GAAP profit of $656 million, down on its profit of $2.37 billion, in the same quarter last year.

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Nvidia (NVDA) Q2 FY2023 Highlights:

  • Revenue: $6.7 billion vs analyst estimates of $6.7 billion (small beat)
  • EPS (non-GAAP): $0.51 vs analyst expectations of $0.52 (1.49% miss)
  • Revenue guidance for Q3 2023 is $5.9 billion at the midpoint, below analyst estimates of $6.91 billion
  • Free cash flow of $824 million, down 38.8% from previous quarter
  • Inventory Days Outstanding: 93, down from 101 previous quarter
  • Gross Margin (GAAP): 43.4%, down from 64.7% same quarter last year

“We are navigating our supply chain transitions in a challenging macro environment and we will get through this,” said Jensen Huang, founder and CEO of NVIDIA.

Founded in 1993 by Jensen Huang and two former Sun Microsystems engineers, Nvidia (NASDAQ:NVDA) is a leading fabless designer of chips used in gaming, PCs, data centers, automotive, and a variety of end markets.

The biggest demand drivers for processors (CPUs) and graphics chips at the moment are secular trends related to 5G and Internet of Things, autonomous driving, and high performance computing in the data center space, specifically around AI and machine learning. Like all semiconductor companies, digital chip makers exhibit a degree of cyclicality, driven by supply and demand imbalances and exposure to PC and Smartphone product cycles.

Sales Growth

Nvidia's revenue growth over the last three years has been impressive, averaging 45.5% annually. But as you can see below, last year has not been especially strong, with quarterly revenue growing from $6.5 billion to $6.7 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Nvidia Total Revenue

While Nvidia beat analysts' revenue estimates, this was a very slow quarter with just 3.02% revenue growth. This marks 11 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

Nvidia's revenue growth is expected to go negative next quarter, with the company guiding to decline of 16.9% YoY next quarter, but analyst consensus sees growth of 3.24% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Nvidia Inventory Days Outstanding

This quarter, Nvidia’s inventory days came in at 93, one day above the five year average, showing no indication of an excessive inventory buildup at the moment.

Key Takeaways from Nvidia's Q2 Results

With a market capitalization of $430 billion, more than $17 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were very impressed by the strong improvements in Nvidia’s inventory levels. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and operating margin deteriorated. Overall, this quarter's results could have been better. The company is up 0.54% on the results and currently trades at $172.92 per share.

Nvidia may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.