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Nvidia shares tumble as China lockdown, Russia blamed for dent in outlook

Sure, stonking server and gaming sales, but hiring and expenses to slow down, too

Nvidia exceeded market expectations and on Wednesday reported record first-quarter fiscal 2023 revenue of $8.29 billion, an increase of 46 percent from a year ago and eight percent from the previous quarter.

Nonetheless the GPU goliath's stock slipped by more than nine percent in after-hours trading amid remarks by CFO Colette Kress regarding the business's financial outlook, and plans to slow hiring and limit expenses. Nvidia stock subsequently recovered a little, and was trading down about seven percent at time of publication.

Kress said non-GAAP operating expenses in the three months to May 1 increased 35 percent from a year ago to $1.6 billion, and were "driven by employee growth, compensation-related costs and engineering development costs."

On an earnings call with Wall St analysts, Kress said both the latest COVID-19 super-lockdown in China and Russia's war in Ukraine have had an impact on revenue. She said the next financial quarter is estimated to bring in about $8.1 billion in revenue, which we note was below analyst expectations of $8.4 billion.

This outlook for Q2 "includes an estimated reduction of approximately $500 million relating to Russia and the COVID lockdowns in China," according to Kress.

The lockdown in China, she said, has affected both supply and demand. Limitations on people's movements are affecting supply logistics and also demand for Nvidia products in the gaming sector.

"Large cities in lockdown are focusing on other important things for their citizens," said Kress, adding that she expects demand to rebound as COVID restrictions get relaxed.

With regard to Russia, she said that Nvidia is no longer selling there. She observed that Russia accounted for about two percent of revenue historically, though more for gaming.

Jensen Huang, founder and CEO of Nvidia, credited the company's Data Center and Gaming businesses for the strong results while acknowledging the uncertainty buffeting financial markets at the moment.

“We delivered record results in Data Center and Gaming against the backdrop of a challenging macro environment,” said Huang in a statement. "The effectiveness of deep learning to automate intelligence is driving companies across industries to adopt Nvidia for AI computing. Data Center has become our largest platform, even as Gaming achieved a record quarter."

Huang said Nvidia is preparing for the largest wave of new products in its history, with production of new GPU, CPU, DPU, and robotics processors increasing during the second half of the year.

"Our new chips and systems will greatly advance AI, graphics, Omniverse, self-driving cars and robotics, as well as the many industries these technologies impact,” he said.

Nvidia delivered non-GAAP EPS of $1.36, beating analyst estimates of $1.30, or GAAP EPS of $0.64, according to the company's earnings report. Non-GAAP net income hit $3.4 billion (up 49 percent year-on-year) or $1.6 billion GAAP (down 15 percent).

By segment, Graphics accounted for $4.6 billion (up 34 percent) in revenue for the quarter while Compute & Networking accounted for $3.7 billion (up 66 percent).

By market platform, Gaming brought in $3.6 billion (up 31 percent), Data Center accounted for $3.8 billion (up 83 percent), Professional Visualization earned $622 million (up 67 percent), Automotive captured $138 million (down 10 percent), and OEM and Other anted up for $158 million (down 52 percent).

Huang on the company's earnings call made the case for anticipated growth in the company's data center business, which he argued would be driven by increasing AI workloads. He said he expects two types of data centers to emerge: those running large language models like recommendation systems, and those at the network edge to handle robotics or autonomous applications.

"In the future, you're gonna see large language models, essentially becoming a platform themselves," he said.

"That would be running 24/7, hosting a whole bunch of applications. And then on the other end, you're seeing data centers at the edge that are going to be robotics or autonomous data centers that are running 24/7. They are going to be running in factories and retail stores, in warehouses, logistics warehouses, all over the world." ®

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