Nvidia is about to make a big announcement at a difficult time

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By Wallace Witkowski

Nvidia chief executive Jensen Huang is expected to unveil the “Lovelace” architecture at the annual event, but analysts believe it could be a smaller launch as the chipmaker deals with inventory issues

Nvidia Corp. has faced a much more challenging environment since the last introduction of a new chip architecture as it approaches a new market launch.

Nvidia (NVDA) kicks off its Fall GTC event on Monday, with Chief Executive Jensen Huang set to deliver a keynote speech Tuesday morning at 11:00 a.m. Eastern Time. At the same event in May 2020, Huang unveiled a new chip architecture in Ampere, and analysts expect he will use this year’s event to launch the company’s next-generation chip architecture, codenamed “Lovelace” after English mathematician Ada Lovelace 19th century, widely credited as the world’s first female computer programmer for her work on Charles Babbage’s theoretical Analytical Engine.

However, leading up to the event, Nvidia has landed in a tough sport as demand from the pandemic era has pushed its share price in half so far this year. The company recently levied a $1.22 billion inventory fee as it tries to clear out old inventory before launch.

Read: Nvidia Sales Guidance Fall About $1 Billion Short of Expectations, Stock Falls

Ampere was unveiled about two months into the COVID-19 pandemic on a backdrop of strong demand for playing cards that sent the stock up 122% in 2020, compared to a 51% rise in the PHLX Semiconductor Index. Now, Nvidia is launching into an environment where gaming demand is falling amid a consumer-tech slump, and the stock is down 55% year-to-date compared to a 35% decline in the SOX index.

Read: Chip stocks could fall another 25% as “we enter the worst semiconductor downturn in a decade,” says one analyst

It was that sharp drop in demand and supply chain issues that helped make the data center Nvidia’s largest unit, contributing $3.81 billion in quarterly revenue to $2.04 billion year over year, according to the company’s most recent earnings report

Read:Nvidia’s big reboot has analysts wondering if the company is in the clear now

“Following the July quarterly report and the recent revelations about licensing restrictions in China for the latest AI computing platforms, sentiment at Nvidia has unsurprisingly been fairly cautious,” wrote Melissa Fairbanks, an analyst at Raymond James, in a recent note.

“In particular, the inventory clearance of 3000-series GPUs continues to have a strong impact on order rates and can carry over to the launch of the 4000-series,” Fairbanks said. “Suppliers state that the actual volume increase will be slightly more muted compared to a normal launch.

Citi Research analyst Atif Malik, who has a buy rating on Nvidia, said he expects the Lovelace-based gaming chips, which are said to be twice as fast as Ampere gaming cards, to be available in October.

Read: Nvidia’s ‘China Syndrome’: Is the Stock Melting Down?

Regarding data centers, Malik said Wall Street expects data center growth to slow through the April-ending quarter. Recently, Tom’s Hardware pointed out that Nvidia’s “Hopper” H100 GPU tested more than 4.5 times faster than its own A100, citing data from machine learning benchmark group MLCommons.

While Malik does not expect any further financial updates, he expects gaming sales for the quarter ended October to come in slightly above Street consensus of $1.45 billion and with consensus of $3.85 billion for data center sales will match.

Malik also said he will be “watching the trajectory of the gaming sales recovery and updating the potential loss of $400 million in forecast revenue due to the COVID restrictions in China.”

At last year’s GTC keynote this fall, Huang unveiled new tools to add interactive AI avatars and data engines to Nvidia’s Omniverse platform to train deep neural networks. This year’s conference runs through Thursday and is open to the public online.

– Wallace Witkowski

 

(ENDS) Dow Jones Newswires

09/17/22 0845ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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