Nvidia’s [NVDA] share price has fallen 8.60% over the past four weeks to 168.82, as it nears its Q1 earnings release on 16 May amid US-China trade-related pressures and weak data centre demand.
The semiconductor maker’s share price fell almost 4% on Monday 6 May, when President Trump intimated he could raise tariffs on Chinese imports, and hit a low of $164 per share on Friday when the Trump confirmed an increased rate of 25% (up from 10%) on $200bn worth of Chinese goods. In response, China has retaliated, announcing tariffs on thousands of US products will rise as high as 25%.
Nvidia 1-year share price performance, CMC Markets, 15 May 2019
The US chip firm is therefore expected to report weak numbers in the upcoming report compared with its 2018 figures, guiding for a poor Q1 and fiscal 2019.
Sector-wide downturn
The US-China trade war has hit the semiconductor industry hard. The sector is highly sensitive to demand from China, its biggest customer and responsible for 20% of global semiconductor sales in 2018, and many companies saw a decline in stock value as tensions escalated between the two nations in the last quarter of 2018.
Nvidia’s share price hit its all-time high of $280 in September 2018, before bottoming out below the $130 mark in December. It is still trading 40% off its high last September. Competitor Intel [INTC] reported weak data centre revenues in Q1 2019 and lowered forecasts for the full year during their earnings update last month.
Meanwhile, industry body the World Semiconductor Trade Statistics organisation warned that sales across the sector were down 13% in the first three months of the year, compared to Q1 2018.
| Market cap | $98.6bn |
| PE ratio (TTM) | 24.44 |
| EPS (TTM) | 6.63 |
| Return on Equity (TTM) | 49.26% |
Nvidia share price vitals, Yahoo finance, 15 May 2019
However, analysts at Cowen were optimistic about the stock in the mid- to longer-term, writing. “We anticipate, once these trends have cleared and Datacenter [sic] spending recovery begins, demand for NVIDIA's accelerators would ramp in 2H19 with both Gaming and Datacenter improving as long-term secular growth drivers for diverse parallel computing processing and related ecosystem drives results.”
Morgan Stanley analyst Joseph Moore raised his price target for the stock to $170 (from $148) and maintained its equal weight rating, saying Nvidia “has one of the better secular growth outlooks in our coverage”.
“We anticipate, once these trends have cleared and Datacenter [sic] spending recovery begins, demand for NVIDIA's accelerators would ramp in 2H19” - Cowen analysts' note
What to expect
The firm is expected to report earnings per share of $0.82 or thereabouts on Thursday’s call – a 60% decrease year-on-year. Net sales are predicted to come in 31.36% beneath last year's total, at $2.2bn. Zacks, which currently has a rank of ‘hold’ for the stock, has forecast full-year revenue of $11.9bn. Nvidia’s Forward P/E ratio of 23.31 is slightly up on the industry standard of 19.6, whilst the semiconductor manufacturing PE average comes in at 57.89, over double Nvidia’s 25.46 (TTM).
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