After an ugly earnings warning sent shares of Nvidia (NVDA) tumbling into the $130's, things are starting to look better for the bulls and that just might be back news. Nvidia has rallied about 15% from the post-January 28, 2019, guidance cut. Strong earnings from the tech sector as a whole plus a market rally have helped buoy shares higher, but I believe NVDA bulls would be better served if expectations for tonight's earnings report were in the gutter.
I worry Nvidia is beginning to morph into another Micron Technology (MU) . That's not a knock on Micron. Heck, the stock is performing well on Thursday, but it's a reference to the cyclical nature of the stock. It's been difficult to find a stock that experiences more highs and lows than Micron as it goes through peak demand and oversupply with DRAM and NAND pricing. The diversity Nvidia has been putting into its offering was supposed to combat that, but with its most recent warning, I'm not sure management knows the precise causes of weakness. Let's take crypto-mining as an example. We'd already heard, during the last earnings report, that the company wasn't modeling any future revenue from crypto-mining, but the most recent warning actually listed crypto-mining as a reason for the warning. Weakness in crypto-mining. I don't know about you, but if I am modeling for ZERO revenue from a particular segment of my business, then it shouldn't impact performance negatively unless somehow it produces gross negative revenue.
Turing architecture was set to be the next great thing but management indicated buyers are likely waiting for lower prices before making purchases. Again, this feels like a misfire on understanding the market. To me this screams Nvidia over anticipated not only demand, but the price consumers would be willing to pay. Datacenters were also outlined as a headwind. What I've seen from datacenter headwinds is once they begin they don't let up for quite some time. Applied Optoelectronics (AAOI) is a great example of this.
Autonomous vehicles are still viewed as a huge growth market, but the bottom line results of smaller names in this segment are demonstrating slower than expected uptake. BlackBerry (BB) is making some progress, but then a dedicated name in the space like Aquantia (AQ) lays a big, fat egg with their most recent report. The hope is Nvidia is eating smaller companies alive, but the road to AV may simply be slower than expected.
The good news for the bulls is some two-and-a-dozen firms downgraded Nvidia since their earnings warnings. With the Wall Street lovefest officially dead, there are plenty of analysts who may be chomping at the bit to jump back onto the bullish bandwagon with the stock trading just above $150. The market will want clarity, but I believe it will be too early for Nvidia to provide the guidance Wall Street wants to see for next quarter. Inline to a slight guide down is what I expect to see. Anticipating whether the market will buy the bad news is a more difficult view, but I have tempered upside expectations for tomorrow. In short, I'm very cautious heading into this report and would prefer to buy a big selloff than see strength post-earnings and chase higher.
