Nvidia Corp. forecast a return to revenue growth after four quarters of declines and improving margins Thursday afternoon as the chip maker beat estimates for its quarterly results.
Nvidia NVDA, +0.58% shares fluctuated between gains and losses following the release of the report, and was last down 1.2%. That may prove to be a disappointment for options traders, who were hoping for a big swing either way.
For the fourth quarter, Nvidia expects revenue of $2.89 billion to $3.01 billion, up from revenue of $2.21 billion in the year-ago period, which would end four straight quarters of revenue declines. Analysts, however, had forecast a little more, with a revenue consensus of $3.07 billion.
Nvidia kicked off the current streak of quarterly sales declines in its fourth quarter a year ago thanks to lost sales from a pullback in the cryptocurrency-mining craze, weak demand from China and a sudden decline in data-center sales growth. Those declines continued in the fiscal third quarter, though they came closer to break-even than in previous periods. The company reported third-quarter net income of $899 million, or $1.45 a share, compared with $1.23 billion, or $1.97 a share, in the year-ago period. Adjusted earnings were $1.78 a share.
Revenue declined to $3.01 billion from $3.18 billion in the year-ago quarter. Analysts surveyed by FactSet had forecast earnings of $1.58 on revenue of $2.92 billion.
Adjusted gross margins are expected to improve to 64.5%, plus or minus 50 basis points, from 64.1% in the third quarter, and Nvidia Chief Executive Jensen Huang said he expects those to improve over the long term because of the company’s product mix. “Nvidia has really become a software company,” Huang told analysts on the call. Whether it is AI, data analytics or gaming graphics, “all of these platforms start from a really rich software, and you can’t just, you just can’t put a chip in these scenarios and they work, so most of our businesses are now highly software-rich and they address verticals that we focus on,” Huang said.
The company’s products won inference performance benchmarks recently “because it’s far more than just a chip,” Huang said. “The software stack that sits on top of the chip and the compilers that sits on top of the chip are so complicated.”
Data center, Nvidia’s second-largest business, saw year-over-year sales declines of nearly 10% in the first quarter and nearly 14% in the second quarter. In the third quarter, they declined 8% to $726 million, lower than the Wall Street consensus forecast of $759.1 million. Revenue from gaming, Nvidia’s largest business, declined 6% to $1.66 billion, while Wall Street had expected a decline of nearly 13% to $1.54 billion.
Nvidia shares rose 0.6% in the regular session to close at $209.79. In comparison, the PHLX Semiconductor Index SOX, -0.30% closed down 0.3%, the S&P 500 index SPX, +0.08% gained 0.1%, and the tech-heavy Nasdaq Composite Index COMP, -0.04% declined less than 0.1%. Of the 38 analysts who cover Nvidia, 26 have buy or overweight ratings, nine have hold ratings and three have sell or underweight ratings, with an average price target of $203.53, according to FactSet data.