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Earnings preview: Nvidia’s revenue set to fall

NOTVidia is due to report its FY22 third quarter results after the US markets close on August 24. Shares of the company have fallen 44% year-to-date on global headwinds, which now face the challenge of reaching a peak in the semiconductor supply-demand cycle. While the gaming segment may experience a sharp decline in revenue, data center sales are expected to slow growth. But the company’s third-quarter guidance will be a key focus for investors to gauge its growth trajectory on an already diminished earnings outlook.

After giving a slight revenue forecast in May, the chipmaker further cut its revenue estimate to $6.70 billion from $8.10 billion, a 19% decline sequentially and growth of 3% per year, at the beginning of the month. Softening demand in gaming amid macroeconomic headwinds is the major negative factor that has held back the growth of the segment. The collapse of the crypto markets may also have significantly weakened GPU demands, leading to excessive inventory in its data center department.

The gaming segment is expected to fall 44% quarterly to $2.04 billion, down 33% annually, while data center revenue is expected to increase only 1% sequentially to $3.81 billion. dollars, up 61% from a year ago, which is also a marked slowdown from an annual growth of 83% in the March quarter. Analysts estimated earnings per share to be between 36 and 51 cents for the June quarter versus $0.89 a year earlier.

Despite negative expectations for its upcoming earnings, the company’s forecast will be key in driving the stock price. “We believe our long-term gross margin profile is intact. We have slowed operating expense growth, balancing investments for long-term growth while managing short-term profitability. We expect to continue share buybacks as we anticipate strong cash generation and future growth,” said Colette Kress, Nvidia’s executive vice president and chief financial officer in a press release in early August.

From a macro perspective, any dovish tone from the Fed at the Jackson Hole Symposium could offer a rally in growth stocks, typically in the semiconductor sector later this week.

Technical analysis

The short-term double top pattern may send the stock price into a bottom range move

Nvidia shares formed a double-top pattern on August 5 and 15, suggesting the stock price may face additional pressure in the near term. Imminent support lies at the 50-day MA around 170. A breakdown of this level could cause the stock price to further test 159, which is short-term support, and then the 140 low on July 5 .

On the other hand, a breakout from the 192 pivot resistance could send stocks up near 218 on the 38.20% Fibonacci retracement.

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