Tanya Abrosimova
Independent Analyst
- Nvidia published discouraging third quarter earnings report.
- The demand for graphic chips plunged.
Nvidia third-quarter results may tell a story of what's going on in the cryptocurrency industry. Once a big beneficiary of the cryptocurrency boom, the company now faces the hard truth: riding a hot trend, you risk to end up with nothing once the trend is over. The company's third-quarter revenues missed the expectations, moreover, the forecast for the 4th quarter was revised to the downside. Nvidia stocks slumped 19% following the news.
Being one of the largest manufacturers of graphics chips for gaming artificial intelligence and machine learning, Nvidia capitalized on the rise of cryptocurrency mining in 2017. The demand for Nvidia's high-performance chips grew strongly as the prices for digital coins skyrocketed. However, now that the trend reversed, the company is left with inventory overload.
"Our near-term results reflect excess channel inventory post the crypto-currency boom, which will be corrected," Nvidia CEO Jensen Huang commented in the official press release.
While the gaming chips business unit that produced chips is still responsible for the bulk of company's revenues, the 3d quarter results look disappointing, while forecasts for the next quarter are 7% lower than in the previous estimates. If the expectations are correct, then Nvidia will experience its first revenue decline in more than five years.
The company expects that the pressure created by the negative trends in the cryptocurrency industry will be short-lived, as the gaming chips will eventually find their buyers. However, the experts warn that it won't be easy to take the inventory levels back to normal due to increased activity on the secondary market of chips.
"Our Q4 outlook for gaming reflects very little shipment in the midrange Pascal segment to allow channel inventory to normalize," according to Nvidia's chief financial officer, Colette Kress.
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