Why Nvidia's gaming chip is ‘pretty bullish’ for the stock: Analyst

KeyBanc Capital Markets Equity Research Analyst John Vinh joins Yahoo Finance Live to discuss earnings for Nvidia and Intel, the global chip shortage, and the outlook for chipmakers.

Video transcript

JULIE HYMAN: Shares of NVIDIA have turned higher now, even after the company came out with a disappointing forecast. It did beat estimates last quarter in terms of earnings and sales. And the company also talked about plans to slow hiring for the remainder of this year. Here to discuss this report is John Vinh. He's KeyBanc Capital Markets equity research analyst. John, thanks for being here.

So, looking at some of the commentary, including yours, around this quarter and the forecast, it seemed as though some of your peers were talking about maybe that initial reaction was a little bit overdone. What's your take here on the forecast and what it implies for the company's business going forward?

JOHN VINH: Yeah, I think the outlook, obviously, reflects pretty well understood kind of weakness that we've seen in consumer, and particularly, for NVIDIA. They've been impacted by a number of factors, particularly with the lockdowns in China and also from the Russia-Ukraine war, right? So most of the impacts is driven by consumer weakness with lockdowns of COVID in China, right? Most of these consumers are locked down. They're struggling just to find food. And obviously, they're not spending.

The secondary impact is, obviously, the Russia-Ukraine war. Like many US tech companies, they've ceased shipments to Russia, which is roughly about 2% of the revenues, but conversely, probably the most optimistic thing that we saw from the report was the strength in data center spending, particularly in cloud data growth, which actually doubled on a year over year basis for the third quarter and the last four quarters.

JARED BLIKRE: And I want to ask you, I was talking-- or we were talking with an analyst yesterday after the earnings announcement, who brought up a good point, which is, NVIDIA tends to be very conservative with their guidance. Are they simply setting up shareholders for a potential beat? And if so, when do you think that would eventually come?

JOHN VINH: Yeah, I think they are being conservative with their second half outlook. Obviously, they're pretty optimistic about what they're seeing in terms of data center growth. They're expecting data center to grow sequentially through the rest of the year. But where we think they're going to be the most conservative is, they kind of talked about new product launches on both the data center side, and they also hinted on the consumer side, they're going to have new graphics cards coming out. But I think that is where the upward bias numbers in the second half is likely going to come from.

JULIE HYMAN: Let's talk about the gaming business specifically here, which had been the company's sort of bread and butter for a long time. Now they've gotten more diversified. I know they're coming out with sort of a new gaming related chipset in the second half of the year. How big do you think that's going to be for the company?

JOHN VINH: We're pretty bullish on it. I think the thing to think about with this new RTX 40 game chip is, we've been hearing that the performance of this chip is going to be 40% better on a gen to gen basis. And typically, when they've been able to introduce better performance chips, that's been accompanied by a commensurate price increase. And on top of a pent-up gaming cycle, you are going to see them benefit from margin expansion, as well as ASV pricing increases in the second half.

JARED BLIKRE: I want to broaden this out a little bit and shift gears to another chip stock, Intel, that I believe you cover. We were talking with Pat Gelsinger, the CEO, over in Davos this week with Brian Sozzi. And I'm just wondering, in general, there's been this rivalry between Intel and AMD. And how do you see that shaping up right now?

JOHN VINH: I think NVIDIA-- oh, I'm sorry. You're talking about AMD and Intel. We think AMD is going to continue to gain share. They're in a really strong position right now with their latest generation Milan processor. We've seen significant share gains from them with CSP providers, which we expect to continue over the next couple of years.

And at the end of this year, they're going to be rolling out their next generation server CPU chip, Genoa, which I think is also going to extend and sustain their share gains versus Intel. Intel, right now from our view, isn't going to really have an opportunity to meaningfully stem share loss until it launches its Grand Rapids server CPU, which is going to be probably launched roughly about two years from now.

JULIE HYMAN: You know, John, we've seen all these stocks sell off, right? Of course, NVIDIA is now perking up a little bit today. But like technology, more broadly, we've really seen semiconductors get beat up. Are you of the mind that it's the same sort of thesis for these guys as it is for broad tech? That is, maybe they can't fully recover while we are in a Fed tightening cycle?

JOHN VINH: I am more optimistic about NVIDIA. And I think the setup for the broader semi space, is that investors want to see kind of a reset in expectations, right? So they want to be able to own these things longer term. Right now, the broader concern is, obviously, not only the macro, but that we're at kind of peak semi cycle. And given that setup, the appetite to buy semi stocks is low until you get a reset in expectations. The challenge right now is that broad-based demand is actually holding up pretty well.

Why I think you're seeing Nvidia up today, despite kind of lower guidance, is exactly that. I think investors look at that and saying, hey, they've de-risked expectations going into the back half of '22 into '23. And now numbers are going to be upward bias and I can own it. And I think that's why we think NVIDIA is going to be able to outperform here through the end of the year.

JULIE HYMAN: Interesting. All right. We'll keep an eye on it. John Vinh, thank you so much for your perspective here. KeyBanc Capital Markets equity research analyst talking to us about those big NVIDIA numbers.