Nvidia outperformed analyst expectations in the earnings department, but missed on the revenue front, whiplashing semiconductor exchanged-traded funds (ETFs) in the process.
Nvidia stock fell as much as 16% in Friday’s early trading session, while semiconductor ETFs were taken down with it–ProShares Ultra Semiconductors (NYSEArca: USD)–down 5%, VanEck Vectors Semiconductor ETF (NYSEArca: SMH)–down 2.34% and iShares PHLX Semiconductor ETF (NasdaqGM: SOXX)–down 3.30%.
Leveraged ETF plays like the Direxion Daily Semiconductor Bull 3X ETF (NYSEArca: SOXL) have been riding high on the strength of the technology sector in the historic bull market run seen in U.S. equities, but it took a brunt of the semiconductor sector’s punishment on Friday–down almost 7%–with its 300% exposure. On the flip side of the coin, the Direxion Daily Semiconductor Bear 3X ETF (NYSEArca: SOXS) gained almost 6%.
Nvidia’s earnings per share came in at $1.84 per share, besting analyst expecting $1.71 per share. The culprit was revenue, which clocked in at $3.18 billion versus an expected $3.24 billion by Wall Street.
Further blame could be assigned to the chipmaker’s fourth quarter guidance as it’s expecting $2.70 billion in revenue for the final quarter while Refinitiv consensus estimates came in at a more exuberant $3.40 billion. The lower guidance came on expectations of surplus inventory for the quarter.
“Our Q4 outlook for gaming reflects very little shipment in the midrange Pascal segment to allow channel inventory to normalize,” said Chief Financial Officer Colette Kress. Revenue for Nvidia’s biggest segment, gaming, fell below the $1.89 billion FactSet consensus estimate, coming in at just $1.76 billion for the quarter.
Nvidia shares were further depressed by a spate of analyst chiming in following the earnings results. Susquehanna, in particular, forecasted lesser cryptocurrency-related revenue by Nvidia, but not to the extent as reported.
“While we have been the crypto-GPU bears on the Street, admittedly we were not patient enough to let this unwind fully play out, and may have also underestimated the size of this Ethereum GPU bubble,” Susquehanna wrote. “That said, we are long-term bulls on NVDA as we believe in the A.I. inference opportunity, pro-viz upgrade cycle and 7nm refresh coming this fall. While NVDA’s report was unexpectedly bad, there is one thing we know… AMD will likely be worse.”
Bear Market Here for Chipmakers?
Per an Investopedia article, “Chip stocks could punish complacent shareholders in the coming months, entering a bear market cycle that lasts several years and gives up the majority of gains posted since 2015. That decline could proceed despite continuing uptrends in other high-tech groups, confusing market players who don’t understand the semiconductor group’s perennial boom-bust cycles or its capacity to trade against broad benchmarks for months or years at a time.”
However, there also appears to be positive sentiment among analysts who feel that this bearish outlook could be overblown. Where other analysts spy weakness in the semiconductor industry, others are seeing growth.
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