Nvidia drops as gaming, PC weakness to continue but analysts highlight upcoming catalysts

Nvidia (NASDAQ:NVDA) shares dropped on Thursday after the semiconductor giant said that weakness in the gaming and PC markets would continue in the third-quarter and it was working to reduce inventory, but analysts noted that there are several upcoming catalysts for the stock.

Citi analyst Atif Malik noted that gaming growth is expected to return as it releases new products later this year.

“While investors would have liked NVIDIA to guide down on data center to de-risk potential macro-related enterprise weakness, we expect gaming sequential growth to resume in the [January quarter] as NVIDIA comes out of inventory correction post channel clearing ahead of the new Ada Lovelace product,” Malik wrote in a note to clients, adding that the ramp of Hopper data center products “remains largely on track.”

Malik has a buy rating on Nvidia (NVDA), but lowered his price target to $248 from $285 following the quarterly results.

Nvidia (NVDA) shares fell more than 3% to $166.52 in premarket trading, while competitors Advanced Micro Devices (AMD) and Marvell Technology (MRVL) were largely flat.

Marvell (MRVL) is set to report quarterly results after the close of trading.

Despite the weakness over the next few quarters, Malik noted that Nvidia’s (NVDA) GTC conference on September 20 should be a catalyst, as there are expectations for new gaming products, something Chief Executive Jensen Huang alluded to on the earnings call.

“The fundamentals of gaming are strong,” Huang said on the call. “We’ll get through this over the next few months and go into next year with our new architecture. I look forward to telling you more about it at GTC next month.”

Mizuho analyst Vijay Rakesh also has a buy rating on Nvidia (NVDA) and lowered his price target to $225 from $250 following the results. However, he pointed out that the results were “in line” with the pre-announcement and continued strength in the data center should ease concerns over short-term gaming weakness.

“We still see [Nvidia] well positioned, with its AI dominance that we estimate [greater than] 95% share in GPU training hardware and software and continued solid roadmap execution,” Rakesh wrote in a note to clients. “Near-term, investors are concerned about potential [first-half 2023] Data Center weakness, but new RTX40-series and H100 DC GPU product ramps should help offset.”

Nvidia (NVDA) issued a preliminary report concerning its second-quarter results earlier this month.

KeyBanc Capital analyst John Vinh, who rates Nvidia (NVDA) overweight with a $230 price target, noted that while the second-quarter results were in-line with the pre-announcement and guidance for the next quarter was soft, it can be viewed as a “clearing event.”

“Data center and auto continue to grow, while inventory charges indicate a moderation in data center growth expectations related to prior-gen Ampere, and expectations for next-gen Hopper remain high,” Vinh wrote in a note to clients, adding that the guidance further lowers upcoming expectations.

Last week, Bank of America said another guide-down from the Jensen Huang-led Nvidia (NVDA) might result in a “necessary reset” as it gets ready to launch its 5-nanometer line of products.