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Nvidia expects to sell significantly fewer semiconductor chips after the crypto winter and inflation reduced global demand.
Nvidia Corporation (NASDAQ: NVDA) and several other semiconductor companies, including Intel (NASDAQ: INTC), are bracing for an underwhelming near future caused by debilitating macro-economic forces such as the crypto winter and rising inflation in the US. The consensus is that the bearish crypto market will also reduce demand for crypto mining chips. The situation has now forced leading semiconductor firms to slash their earnings forecasts for the second quarter.
Major semiconductor maker Nvidia announced that it would cut back on hiring to remain profitable. According to analysts from the Bank of America, such a trying period for chip and semiconductor-manufacturing firms is typical every 3-4 years. This also usually involves waning waiting lists for company products and declining crypto and stock prices. Consequently, potential consumers typically end up with far less purchasing power and disposable income, thus becoming more frugal spenders too.
Eastern European War, Other Factors Impact Nvidia Semiconductor Sales Projection
This year’s downturn also sees added constrictions caused by supply chain constraints from China and the Russia-Ukraine war effect. In fact, the Wall Street Journal (WSJ) states that the two-year chip boom has now lost considerable ground due to all these factors.
“The frenzy to buy laptops and other gadgets early in the Covid-19 pandemic has vanished as inflation dissuades people from upgrading machines that they bought in the past couple of years amid the shift toward remote work and learning,” the WSJ report reads.
In addition, the Wall Street Journal also adds:
“The fading of the crypto boom has also put an end to early pandemic scenes of people camping outside computer stores to buy chips for cryptocurrency mining and high-end video gaming.”
In addition to Nvidia and Intel, other semiconductor manufacturers may suffer heavy losses in earnings estimates. Top of the list is Micron and data-center specialist Advanced Micro Devices.
Also experiencing a slump in demand are Nvidia’s Graphics Processing Units, although by a lesser degree compared to a few years ago. Back in 2017, miners saw the units as a convenient solution to their needs and made acquisitions in increasing amounts. This led to Nvidia ramping up production of the handy mining hardware to match procurement intensity. However, demand began to pare down as miners gravitated toward the task-specific specially-designed ASIC chips.
In November, Nvidia slashed its annual sales projection to $2.7 billion, triggering a huge investor stock sell-off. This subsequently resulted in a 20% drop in share price. However, analysts presently view NVDA as likely trading at a premium compared to its peers. For instance, the general consensus is that the chip manufacturer will post earnings of $1.27 per share. This represents a change of +22.1% from the year-ago quarter. Furthermore, the consensus earnings estimate of $5.44 for the current fiscal year also suggests a change of +22.5% year-over-year.
The analysis further reads:
“For Nvidia, the consensus sales estimate for the current quarter of $8.12 billion indicates a year-over-year change of +24.8%. For the current and next fiscal years, $33.94 billion and $38.47 billion estimates indicate +26.1% and +13.4% changes, respectively.”
However, the report also notes that while earnings growth is the foremost indicator of financial health, it still takes cues from revenue growth.