Nvidia Sees Your China Worries, Raises You One ‘Extraordinary, Unusually Turbulent, Disappointing Quarter’

Nvidia Sees Your China Worries, Raises You One ‘Extraordinary, Unusually Turbulent, Disappointing Quarter’

When last we checked in on Nvidia, the stock was busy stumbling through what would end up being the worst quarter in 16 years.

NVD1

(Bloomberg)

The problem, as we were keen to point out, wasn’t so much that morons aren’t mining cryptocurrency anymore. Here’s what we said on November 16:

Rather, the issue is that when you consider Nvidia’s guidance with Applied Materials’ revenue forecasts and then you connect the dots with signs of waning appetite for iPhones, you end up wondering about demand for electronics more generally. In a world where it’s all about Tech, collapsing demand for things like servers and mobile devices is really — really — bad news.

On the very day we penned those lines, Nvidia was removed from Goldman’s Conviction list.

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Let’s Talk About Nvidia, Which Was Kicked Off Goldman’s Conviction List On Friday

Nvidia is the poster child for highfliers gone wrong. The drawdown from the early October highs to the December lows was the stuff nightmares are made of (top pane) and if things don’t turn around in a hurry, Monday will be among the worst days for the shares in a decade.

NVD3

(Bloomberg)

The problem is obviously the guide down (Nvidia now sees Q4 revenue of $2.2 billion – that’s down markedly from a previous forecast of $2.7 billion). At the risk of overstating the case ahead of a possible Fed balance sheet relent on Wednesday and/or progress on trade later this week, the news is a veritable death blow for sentiment. Cue Kramer.

 

The language in the filing is a disaster – plain and simple. Just about the last thing anybody needed to hear following Caterpillar’s “lower demand in China” comments was this (from Nvidia’s 8-K):

In Gaming, NVIDIA’s previous fourth-quarter guidance had embedded a sequential decline due to excess mid-range channel inventory following the crypto-currency boom. The reduction in that inventory and its impact on the business have proceeded largely inline with management’s expectations. However, deteriorating macroeconomic conditions, particularly in China, impacted consumer demand for NVIDIA gaming GPUs. In addition, sales of certain high-end GPUs using NVIDIA’s new Turing architecture were lower than expected. These products deliver a revolutionary leap in performance and innovation with real-time ray tracing and AI, but some customers may have delayed their purchase while waiting for lower price points and further demonstrations of RTX technology in actual games.

[…]

“Q4 was an extraordinary, unusually turbulent, and disappointing quarter,” said Jensen Huang, founder and CEO of NVIDIA.

Of course that came with the obligatory nods to the company being “confident” in their “strategies and growth drivers”.

And look, I’m sure they are – “confident” that is. But that doesn’t matter right now. What matters is that this is yet another high-profile company citing a deteriorating macroeconomic environment and zooming in on China as the proximate cause of poor results. 

Options trading in the shares exploded on Monday, with February puts among the most active.

NVDAOMO

(Bloomberg)

Again, this is not the kind of news everyone needed at a time when traders are starting down a mine field of event risk from trade talks, to a Powell presser to “wall” worries.


 

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