The markets are in such chaos that the unthinkable has happened in 2022: Shares of king Nvidia (NVDA) are down. And down by a significant amount – 27%, as it happens. The stock has been a perennial winner over the past few years, pushed ahead by multiple tailwinds – from data center and gaming to automotive, AI and crypto. But it appears some of those tailwinds are now waning. In fact, Baird’s Tristan Gerra thinks things are about to get hairier still.
“We believe order cancellations recently started in consumer GPUs, driven by excess consumer GPU inventories notably in Western Europe and Asia, a slowdown in consumer demand (reflected by an ongoing reduction in graphic cards pricing) notably in China, slowdown in PC demand, along with short-term factors such as covid-related shutdowns in China (logistical issues) and the Russia embargo,” the 5-star analyst explained.
Gerra thinks that propelled by both gamers and mining, Russia accounts for a bigger chunk of consumer GPU than the consensus view. Furthermore, China is thought to represent between 25-30% of the overall consumer GPU market, and there, consumer demand has “significantly weakened across the board.” And although Nvidia sells at MSRP (manufacturer’s suggested retail price), following mid last year’s pricing peak, reflecting the softening demand, the price declines in GPUs are such that orders are “now being impacted.”
Potentially further compounding the weakening demand trends, the Ethereum fork is anticipated in late Q2/early Q3, which could result in graphic cards flooding the second-hand market. This will put further pressure on pricing and most probably impact orders at least until momentum is gained from the ramp of the GeForce RTX 40 series (not expected until C2023).
And although Gerra notes that data center trends “remain very strong,” the analyst sees year-over-year revenue comps peaking in this fiscal year’s first half and forecasts lower Gaming revenue for the rest of the year.
Therefore, based on all the above, Gerra downgrades NVDA from Outperform…