Nvidia earnings: 'The fundamentals of the quarter itself were terrific,' analyst says

Jim Kelleher, director of research at Argus Research, joins Yahoo Finance Live to discuss Nvidia's latest quarterly results.

Video transcript

- Nvidia stock under pressure here after hours, following the company's earnings beat. But guidance is what the street is having a real issue with, guidance coming up a bit light in terms of what the street was expecting. So let's talk about all this with Jim Kelleher. He's Argus Research's director of research. And Jim, taking a look at these numbers, top and bottom line, it actually looks pretty strong for the company, revenue coming in at $8.29 billion, adjusted EPS coming in at $1.36.

Yet, we're seeing the sell off largely due to their forecast. What did you make of this most recent report?

JIM KELLEHER: Good afternoon. Thanks for having me. So first of all, I would say there is a great deal of uncertainty on the guide. I think the street was looking for $8.4 billion in revenue. They're guiding for closer to $8.1 billion in revenue. But they've identified about $500 million in foregone revenue related to the COVID lockdowns in Shanghai and to the Russian-Ukraine war. Now, what we've seen with other companies is those impacts are kind of having a great deal of-- are sort of uncertain.

We're not really sure how they're going to play out. And we do know that Nvidia is a serial underguider, overreporter. So we will have to see how the quarter plays out, but the fundamentals of the quarter, per se, of the quarter itself were terrific.

- Sounds like you're saying that they like to underpromise, overdeliver. Jim, what do you make of-- obviously, a huge issue with NVIDIA, along with a lot of its competitors out there, has been the chip shortage, the supply chain disruptions. Obviously, that has had a massive impact on this company. We've been making some progress, but how much further do we have to go until we get back to, quote, unquote, normal.

JIM KELLEHER: Well, one thing that Nvidia has going for it is yes, they are a volume producer of GPUs for the gaming market, but many of the products they provide, particularly for data center applications, are very highly specialized, like their Bluefield DPUs, and some of their very high end data center processing products, and their drive computers for semi and autonomous driving. So I don't think they run into quite the same issue that a volume producer runs into.

But of course, it's impacting everyone. And also, when they ship product, the supply chain shortage just doesn't affect the company producing its own chips because companies need complete kits to finish parts. And that includes high end servers and hyper computers, that sort of thing. So it's a complex supply chain, and they're impacted in that regard. No one is immune from this situation.

And obviously, I think a lot of people were starting to breathe a sigh of relief on the supply chain. In fact, Jensen Huang, last quarter forecast, this was February, I guess he forecast that he thought they'd see some good relief on supply chain in this current quarter and hence forth. But at that time, the Shanghai lockdowns were only just beginning. So they weren't even really visible at the time. So that does add uncertainty.

- Jim, data center revenue coming in at $3.75 billion, gaming coming in at $3.6 billion, both better than what the Street was expecting. Gaming, where do you see the opportunity here for Nvidia going forward, just in terms of the fact, we know what's extremely important here for their bottom line. They certainly have been making huge strides over the most recent quarters in gaming. $3.62 billion, where do we go from here?

JIM KELLEHER: It's just a vast opportunity that I was looking, trying to parse out the crypto impact. And I looked at fiscal '19, when in the first quarter of-- it was 1Q 19. Their other category, which included crypto, represented 12% of their revenue at the time. This time, the crypto has really become kind of immaterial. It was far from even 1% in the last quarter, the fourth quarter. And I doubt it's anywhere near 1% in this quarter.

But the thing that I took away was their gaming revenue in fiscal 2019 was about $6.2 billion, and in 2022, it was already $12.5 billion. And it could get up to like $15 billion this year. I mean, the explosion has been in the part of the market where they participate, which is PC gaming. And I think that's largely due to the enormous popularity of e-sports, which is a particularly-- it's big in the US, but it's really, truly a global phenomenon.

And so PC gaming, the PC gamer, particularly the e-sports players, they only want the best RTX 3000 series card.

- And Jim, real quick, before we let you go, what do you want to hear from Nvidia on the earnings call that's going-- it looks like we just lost Jim's shots. We're going to have to wait till next time to get his thoughts just on what else he wants to hear from Nvidia, or get his reaction to the call this afternoon. Our thanks to Jim.