(Bloomberg) -- Nvidia (NASDAQ:NVDA) Corp., which walked away from a $40 billion acquisition of Arm Ltd. earlier this month, failed to impress investors with its latest forecast, a sign of the lofty expectations for the most valuable U.S. chipmaker.
Though the company topped Wall Street estimates with its latest quarterly results -- and projected strong growth for the current period -- the shares fell more than 3% in pre-market trading on Thursday.
Chief Executive Officer and co-founder Jensen Huang has turned a niche business -- graphics cards for gamers -- into a chip empire worth more than $600 billion. But investors have high hopes for the company, and even a record-setting quarter can leave them underwhelmed.
In the “weird world” of Nvidia, investors’ expectations are always different than the consensus estimate, Vital Knowledge analyst Adam Crisafulli said in a note. Investors may have been looking for more upside, but within the next day or so, they’ll probably come back to the realization that Nvidia has “some of the best fundamental prospects in tech,” he said.
There were some weak spots last quarter. Sales of Nvidia’s auto chips were lower than projected. And its adjusted gross margin came in at 67% -- shy of the 67.1% analysts estimated and below what some chipmakers have reported recently. Analog Devices Inc (NASDAQ:ADI). had a margin of 72% when it delivered its quarterly results earlier Wednesday.
Supply constraints also are weighing on Nvidia’s data-center chip business, but the situation is improving, Huang said in a conference call with analysts. Companies like Nvidia that rely on outsourced chip manufacturing need to change the way they work with suppliers, Huang said. Making supply plans one quarter in advance doesn’t work at a time when the industry is expanding rapidly, he said.
“We all have to recognize that the market size, our market footprint, is much larger than it used to be,” he said in an interview. “We have to plan with a much larger horizon.”
Nvidia is bouncing back from its failed attempt to acquire Arm, a deal that faced regulatory opposition around the world. It terminated the transaction on Feb. 8 and expects to write off $1.36 billion this quarter to account for prepayments it pledged to Arm’s owner, SoftBank Group Corp. Huang said Wednesday that he gave the deal his “best shot.”
Nvidia had touted the purchase as a chance to expand its reach into many devices, including smartphones.
But even without Arm, Nvidia has been growing more quickly than projected. Revenue in the fiscal first quarter will be about $8.1 billion, the company said Wednesday. That compares with a $7.2 billion average analyst estimate, according to data compiled by Bloomberg.
Huang said that Nvidia will increase the number of Arm-based processors it makes, and the current Grace model is only the beginning. He remains convinced that the technology, increasingly a rival to Intel Corp (NASDAQ:INTC).’s X86, will carve out a bigger role for itself in computing. Arm chips are already pervasive in power-constrained technologies, such as smartphones.
Nvidia’s stock, which ended 2015 at $8.24, closed at $265.11 on Wednesday. But the shares have taken a hit lately, part of a broader decline for semiconductor stocks. They’re down almost 10% this year.
The Santa Clara, California-based company has pushed into the booming field of artificial intelligence computing, where its processors are used to handle an ever-growing flood of data. That’s turned Nvidia’s products into essential equipment for data centers, rather than just gaming computers.
Nvidia posted sales of $7.64 billion in the fourth fiscal quarter, topping the $7.4 billion average prediction from analysts. Earnings came in at $1.32 a share, excluding some items, compared with an estimate of $1.22.
Revenue in Nvidia’s data-center business rose 71% in the fourth quarter to $3.26 billion, ahead of the $3.2 billion estimated by analysts. Its main gaming business generated sales of $3.42 billion, compared with an estimate of $3.36 billion.
(Updates with CEO’s remarks starting in sixth paragraph. Updates with shares.)
©2022 Bloomberg L.P.
