Nvidia treads water on gaming worries, weak guidance concerns
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Nvidia (NASDAQ:NVDA) shares edged into positive territory, Thursday, after the semiconductor company forecast second-quarter results that were weaker-than-expected due to numerous business and international issues.
Late Wednesday, Nvidia (NVDA) said it expects its second-quarter revenue to reach $8.1 billion--well below the $8.44 billion that Wall Street analysts had forecast. Nvidia (NVDA) said that it anticipated a $500 million sales shortfall in the quarter due to the impact of Covid-related lockdowns in China and Russia's ongoing invasion of Ukraine.
Several analysts also cited Nvidia's (NVDA) outlook as a sign that the company might be experiencing some weakness in its gaming division.
"We wonder if Nvidia also did not include some reduced sales into the channel in July, and perhaps some in October, to make way for the 4000 [graphics processing unit] series," said Susquehanna analyst Christopher Rolland, in a research note. Rolland, who has a positive rating on Nvidia's (NVDA) shares, said that analysts are now looking for Nvidia (NVDA) to see "modest" sequential revenue growth of 8% in its second quarter, as opposed to earlier forecasts for 20% growth.
Rolland trimmed his price target on Nvidia's (NVDA) shares to $260 each from $280.
Citi analyst Atif Malik lowered his price target on Nvidia (NVDA) to $315 a share from $350, noting that the "gaming reset" provides an attractive entry point for investors. In April, Malik cut his estimates for Nvidia's (NVDA) gaming business due to concerns about Russia and China, and said that he is now positive about the "risk-reward [potential] in the stock."
Morgan Stanley analyst Joseph Moore lowered his price target on Nvidia's (NVDA) stock to $182 a share from $217. Moores said that although the company's data center business is strong, a "correction" in the gaming business is all but assured, due to weaker PC gaming software and slower Ethereum mining. 
On its earnings call, Nvidia (NVDA) Chief Executive Jensen Huang tried to assuage fears that there is a slowdown in the company's gaming segment.
"The underlying dynamics of the gaming industry is really solid," Huang said on the earnings call. He added that even including the situation with the war in Ukraine and Covid-related lockdowns in China, "the rest of the market is fairly robust."
Huang explained that is due to 100 million new gamers coming into the PC industry in the past two years, as the format has "expanded tremendously." Huang credited the expanded use for PCs, including by content creators and influencers, people working from home as well as the traditional gamer, all of which are driving the demand for Nvidia's (NVDA) GeForce GPUs.
Looking elsewhere, Rolland noted that the company's data center business continues to be a stalwart and is now its largest segment, having generated $3.75 billion in the first quarter.
"Overall, we do not view these Gaming headwinds as a surprise and are excited for [data center] visibility and a strong [2022] roadmap" that includes at leas five new chipsets, Rolland said.
Earlier this month, Morgan Stanley restarted coverage on Nvidia (NVDA), calling it "one of the best growth names" in the semiconductor space.