Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
You can access both of our platforms from a single Saxo account.
Nvidia shares down 4% on guidance cut
Peter Garnry
Chief Investment Strategist
Summary: Nvidia has see a dramatic reduction in demand for its GPUs related to its gaming segment. While there might be some weakening of demand in gaming the real driver is most likely Bitcoin mining which has seen a plunge in profitability forcing many Bitcoin miners to end operations and flood the market with used GPUs causing prices to tumble. The lower GPU prices are forcing Nvidia to write down its inventory by $1.3bn. Shares opened 8% lower but have recovered half the losses as the company says the long-term gross margin profile is intact.
What happened to the gross margin?
A little more than two months ago Nvidia announced FY23 Q1 results showing record revenue, but today the graphics card maker is pre-announcing Q2 results cutting its gross margin (GAAP) guidance for the Q2 quarter (ending 31 July) from 65.1% to 43.7% and expected revenue of $6.7bn compared to previously announced $8.1bn. The shortfall in revenue is driven by its gaming segment which Nvidia is saying is impacted by the macroeconomic backdrop. The fall in demand in its gaming segment has also meant that Nvidia has too much inventory and has been forced to adjust prices. The company is therefore booking a $1.3bn inventory write-down.
It is a well-known fact that Nvidia’s GPUs are heavily used in Bitcoin mining despite the graphics card maker has never officially linked its business to the industry. Because Nvidia does not know precisely the end use case of their GPUs, revenue related to Bitcoin mining likely ends up in both its datacenter and gaming segments. The falling demand for Nvidia’s GPUs has nothing to do with the gaming industry but instead the profitability of the Bitcoin mining industry. As the chart below shows, the profitability of Bitcoin mining has shrunk from being massively profitable in late 2021 to almost loss-making today. This naturally drives lower demand for additional GPUs used in Bitcoin mining and it also forces miners out of business which subsequently floods the market with old GPUs. This increase in available GPUs through secondary sales has caused GPU prices to fall dramatically as revealed by Gizmodo back in June.
Nvidia says long-term outlook is unchanged
The last time Nvidia saw a dramatic decline in its share price was back in late 2018 as Bitcoin mining profitability went negative following Bitcoin’s massive speculative rally in late 2017 drumming up demand for GPUs for mining. This time is no different. Long-term Nvidia is riding many of the most important technology vectors, but a key risk of course is the growing tensions between the US and China which could alter its supply chains and market opportunity. Nvidia has 102 partners in China which is roughly 12% of its total number of partners.
Despite the significant guidance being cut investors are bidding up shares after being down 8% on the open. Nvidia shares have corrected half of the initial decline down only 4%. The reason is likely that the company states that it believes that its long-term gross margin profile is intact.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...