Nvidia stock still isn’t a great buy yet, analyst warns

Why Wall Street is staying cautious on Nvidia...for now. Read More...

Nvidia stock should still be approached with caution given several industry challenges, one top chip analyst warns.

“We however remain cautious on Nvidia’s consumer GPU outlook for the second half despite new product launches (to be announced at GTC Fall), given ongoing price pressures and weak consumer demand,” said Baird analyst Tristan Gerra in a note to clients on Tuesday, adding that he is on the “sidelines” with respect to the stock.

Shares of the chipmaker were relatively unchanged on the session. The stock is down 41% in 2022 so far, compared to a 20% drop for the Nasdaq Composite.

“Consumer GPUs started to retail below MSRP this month, and we expect aggressive pricing in an attempt to flush excess inventories ahead of new product introductions,” Gerra added. “Ethereum fork is so far scheduled for September. Once existing miners go idle, we could potentially see a second wave of inventories as these GPUs move to the second-hand market.”

The cautious commentary comes as Nvidia’s second quarter earnings generally let down Wall Street.

Nvidia said earlier this month in a pre-announcement July quarter sales would be about $6.7 billion, well below a prior outlook for $8.1 billion. Sales would be down 19% sequentially if the $6.7 billion holds true when the company reveals its full results on Aug. 24.

Jensen Huang, CEO of Nvidia, walks across the stage as he delivers his keynote address at CES in Las Vegas, Nevada, U.S. January 7, 2018. REUTERS/Rick Wilking

Gaming sales plunged 44% sequentially, while data center sales only rose 1%. The company added it would incur $1.32 billion in charges related to inventory write-downs amid the below plan results.

“Our gaming product sell-through projections declined significantly as the quarter progressed,” Nvidia founder and CEO Jensen Huang said in a statement. “As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our gaming partners to adjust channel prices and inventory.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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