Nvidia is about to make a big announcement at a difficult time

Nvidia is about to make a big announcement at a difficult time

Nvidia Corp. is facing a much trickier environment since the last time it launched a new chip architecture as it nears a new launch.

Nvidia NVDA,
+2.08%
kicks off its fall GTC event on Monday, with Chief Executive Jensen Huang delivering a keynote address Tuesday morning at 11 a.m. Eastern. At the same May 2020 event, Huang unveiled a new chip architecture in Ampere, and analyst expects to use this year’s event to unveil the company’s next-generation chip architecture codenamed “Lovelace,” after the 19th-century English mathematician. Ada Lovelace, widely regarded as the world’s first computer programmer for her work on Charles Babbage’s theoretical analytic engine.

Ahead of the event, however, Nvidia has landed in a tough run, with pandemic-era demand pushing the stock price by half so far this year. The company recently charged a $1.22 billion inventory fee as it wants to clear out old inventory before launch.

Read: Nvidia Sales Forecast Drops About $1 Billion Below Expectations, Inventory Drops

Ampere was unveiled about two months after the COVID-19 pandemic amid strong demand for game cards that propelled the stock to a 122% gain in 2020, compared to a 51% gain on the PHLX Semiconductor Index SOX,
+0.53%.
Now Nvidia is launching an environment where gaming demand is falling amid a consumer technology slump, and its stock is down 55% so far, compared to a 35% drop on the SOX index.

Read: Chip stocks could fall another 25% as ‘we enter worst semiconductor downturn in a decade,’ analyst says

It was that sharp drop in demand and supply chain issues that helped make the data center Nvidia’s largest unit with a quarterly revenue contribution of $3.81 billion, a 61% year-over-year gain, versus a decline of $3.81 billion. 33% in game sales to $2.04 billion from a year ago, according to the company’s most recent earnings report.

Read: Nvidia’s major reset leaves analysts wondering if the company is now clear

“After the July quarterly report and recent revelations about Chinese licensing restrictions on the latest AI computing platforms, sentiment around Nvidia was unsurprisingly fairly cautious,” Raymond James analyst Melissa Fairbanks wrote in a recent note.

“In particular, the destocking of 3000 Series GPUs continues to severely impact order rates and could carry over to the 4000 Series launch,” Fairbanks said. “Suppliers indicate that the actual volume increase will be slightly more muted compared to a normal launch.

Citi Research analyst Atif Malik, who has a buy recommendation on Nvidia, said he expects availability in October for the Lovelace-based gaming chips, which are said to be twice as fast as Ampere gaming cards.

Read: Nvidia’s ‘China Syndrome’: Is the Stock Melting?

As for the data center, Malik said Wall Street expects a slowdown in data center growth through the end of April. Recently, Tom’s Hardware pointed out that Nvidia’s “Hopper” H100 GPU was tested as more than 4.5 times faster than its own A100, citing data from machine-learning benchmark group MLCommons.

While Malik does not expect further financial updates, he expects gaming revenue for the quarter ending October to be modestly above the Street consensus of $1.45 billion and in line with the $3.85 billion consensus for data center sales.

Malik also said he looks forward to the “pathway of recovery in game sales and will provide an update on the potential loss of $400 million in projected revenue due to China’s COVID restrictions.”

At last year’s GTC keynote, Huang introduced new tools to extend Nvidia’s Omniverse platform with interactive AI avatars and data engines to train deep neural networks. The conference will run through Thursday this year and will be accessible to the public online.

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