Nvidia Corporation (NVDA) Stock Punished For Massive Guidance Miss

For the second consecutive quarter, Nvidia Corporation (Nasdaq: NVDA) stock was hammered after the semiconductor giant failed to clear the market’s high revenue and guidance bars. Nvidia stock dropped 17 percent on Friday morning following the report, but analysts say long-term investors who can stomach near-term volatility should be scooping up shares of NVDA stock.

Nvidia on Thursday reported third-quarter adjusted earnings per share of $1.84, beating consensus analyst estimates of $1.71. Third-quarter revenue was $3.18 billion, missing Wall Street forecasts of $3.24 billion. Revenue was up 21 percent from a year ago.

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Gross margin in the third quarter was 60.4 percent, down from 63.3 percent in the second quarter.

By segment, Nvidia reported gaming revenue of $1.76 billion, below analyst expectations of $1.89 billion. Data center revenue was $792 million compared to analyst expectations of $821 million. Professional visualization revenue was $305 million, above the $284 million consensus forecast. Nvidia’s data center, professional visualization and automotive segments all recorded record revenue on the quarter.

Nvidia also raised its quarterly dividend by 7 percent to 16 cents.

“Our near-term results reflect excess channel inventory post the cryptocurrency boom, which will be corrected,” CEO Jensen Huang says in a statement.

Revenue from original equipment manufacturers was $148 million, ahead of consensus estimates of $102 million but down 23 percent from a year ago. Nvidia said the decline was due to a drop-off in cryptocurrency mining demand. Nvidia also reported a $57 million charge related to decreasing demand for older cryptocurrency mining products.

Looking ahead, Nvidia guided for fourth-quarter revenue of between $2.646 billion and $2.754 billion. That revenue guidance missed consensus Wall Street estimates of $3.4 billion by about 20 percent.

Despite the huge sell-off on Friday, Bank of America analyst Vivek Arya says the third-quarter report did not change his long-term bullish thesis for NVDA stock.

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“(Nvidia reported) disappointing results/outlook as excess channel inventory impact turned out to be much more severe than we thought,” Arya says. “Despite near-term gaming headwinds, we remain confident in NVDA’s uniquely leverageable graphics platform and the long term potential of its 10-times growth opportunities across artificial intelligence, cloud computing, autonomous cars, robotics, health care and workstations.”

Bank of America has a “buy” rating and $250 price target for NVDA stock.

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