On Wednesday, the Nvidia corporation, known for its graphics chips production, announced its forecast for the current quarter. The company expects to see a nosedive in sales as a result of a general weakening of the gaming industry. After the forecast, the company’s stocks decreased in after-hours trading, with a total drop being around 5%.
According to the forecast, the expected revenue is estimated to be around $5.90 billion, which is 17% less than a year ago. At the same time, the company has registered growth in its other areas, such as automotive and data center businesses, which might balance the overall situation.
Nevertheless, analysts do not share this cautious optimism. They noted a slowdown of the company’s current growth areas, which can bring additional difficulties for Nvidia. They especially highlighted slowing growth in data center, which aided in sales of chips.
During a recent earnings call, Jensen Huang, Nvidia Chief Executive, reported a decrease in infrastructure investment of Chinese cloud service providers, but it was also stated that this decrease was offset by the increasing in the U.S.
The revenue of the second quarter was said to be $6.70 billion, which was way below the amount of $8.1 billion which Nvidia had forecasted in May. The revenue of the gaming division was announced to be $2.04 billion, which is also less than the last year results, while the data center revenue was reported to be $3.81 billion, more than 60% higher than last year.
The market of graphics chips, or GPUs, has started its decline with the collapse of the cryptocurrency markets. Nvidia chips are frequently used for cryptocurrency mining, which explains a strong demand for the chips noticed during the rise of cryptocurrency markets. As those markets collapsed, the demand has correspondingly declined as well.
At the same time, experts link the weakening in the gaming industry with declining discretionary purchasing, which includes purchases of gear for video games. It has a direct connection with record high inflation levels and a general decrease in the purchasing power.
According to the Nvidia representatives, the company incurred a loss of $1.34 billion due to the writing down a fair amount of its production, which was manufactured when the video gaming and data center industries were expected to strengthen.
Jensen Huang commented on the situation, stating that the demand is still high, although the forecasted demand was much stronger.
He also told about the supply challenges the company had faced. Said challenges stopped Nvidia from selling more gear to data centers. According to Huang, a notable demand is observed for the GPUs available through cloud services. At the same time, Nvidia has struggled with a certain number of supply chain challenges recently.