Goldman Sachs just released an announcement admitting it was wrong over its recent optimistic Nvidia stock rating. Goldman Sach’s chip analyst, Toshiya Hari, went so far as to remove Nvidia from their list of best ideas.
According to Hari, the firm was definitely wrong about the stock, initially underestimating how big the channel inventory build would be for mid-range gaming graphics processing units (GPUs). This inventory correction, he goes on to say, is just a one-time reset; it is not a change to the stock’s long-term growth profile. Also, he notes that it could take another six months before the market can correct to regain its confidence in the business’ growth trajectory.
By market close on Thursday, Nvidia released its fiscal third-quarter report, indicating that revenue was about $3.18 billion. This was more than $3 billion shy of the average forecast. In addition, the popular chipmaker forecast a sales range that is materially lower than expectations, which will clear roughly $2.7 billion by January +/- 2 percent, against the Wall Street consensus of $3.4 billion.
Nvidia blames the weak guidance on excess inventories within the retail channel, especially coming after the crypto-currency mining boom from earlier in the year. You see, cryptocurrency miners have been using graphics cards based on AMD’s (Advanced Micro Devices) and Nvidia’s chips to hunt and collect new bitcoins, which can then, of course, be sold or protected for future appreciation.
Mining demand has decreased, of late, because digital currency prices have been in steady decline. It is also pretty important to note that Nvidia had a $57 million charge in relation because of this decreased demand for the cryptocurrency, in the third quarter.
It should also be noted that Nvidia is only one of many tech stocks that was hit pretty hard in October. Indeed, this was the worst month for the whole of the Nasdaq Composite Index since 2008. Fortunately, the stock is up 4 percent since the first of the year.
Overall, then, shares of Nvidia are down 18.7 percent, now at $164.55.