The Strategist

Growing demand for Nvidia's products couldn't keep its shares from falling

08/14/2017 - 14:50

The high demand for video cards has not ensured growth of quotations of Nvidia, the manufacturer of graphics solutions. The market was dissatisfied with growth of the American company’s revenues in data centers and cars. The company's shares fell in price by more than 6% after the report.

Nvidia’s revenues in the second quarter of the financial year 2018 increased, as expected, thanks to the buoyant demand for graphics solutions used for the production of crypto-currencies. However, once report was published, shares of the company fell by 6.6%, as the growth of the automobile and server business was not as strong as the market expected.

Crypto-currencies, unlike traditional fiat currencies, are not printed on the machine tool of state-owned enterprises. Anyone can install on their computer a program that will solve mathematical problems and extract bitcoins. This process is called mining. At the same time, nothing is required from the owner of the PC: the system will dispose of the computer’s power in automatic mode.

Fans of bitcoin see many advantages in Bitcoin and other crypto-currencies, and believe that this technology will form the basis of the new economy. Among the advantages is the ability to instantly send digital currency to any person anywhere in the world, bypassing intermediaries - banks and other financial institutions. Transactions are completely anonymous and confidential. At the same time, every computer on which the crypto currency program is installed contains a copy of all transactions from the very beginning of the system's existence; all new transactions are also recorded there. This archive is called block. This solves the problem of double transactions.

For the three-month period ending July 30, 2017, NVIDIA's net profit was $ 583 million, which is approximately twice as much as a year earlier. Sales jumped 6% to $ 2.23 billion and were above $ 1.96 billion, predicted by analysts who were interviewed by FactSet. The company's revenue forecast for the current reporting quarter also exceeded Wall Street expectations - $ 2.35 billion ± 2% against $ 2.13 billion, respectively.

Over the past year, the quotes have increased threefold, so that any manifestation of weak performance units (especially one that is responsible for issuing solutions for data centers) can significantly affect the company's shares, says Reuters.

Quarterly revenue in the division of solutions for data centers more than doubled and reached $ 416 million, yet haven’t reached an average analytical forecast of $ 423.3 million. The same goes for the car business: there, revenues grew by 19.3%, to $ 142 million, while experts expected $ 146.2 million. This discrepancy between Nvidia's real income and Wall Street’s forecasts caused the company's quotes to fall.

21 out of 38 brokerage companies referenced by Reuters recommend purchase of shares of Nvidia. 12 brokers recommend keeping the papers, 5 - getting rid of them. "Obvious stimulating factors are needed to trade at 40 or 50 times the profit of Nvidia, and it is necessary to demonstrate stronger growth in key segments of long-term growth, including in the data center market," said Barclays analyst Blayne Curtis.