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Nvidia takes a big hit to gaming revenue: ‘it’s a clearing event for Nvidia’

Nvidia Corporation (NASDAQ: NVDA) is down 8.0% on Monday after the tech company said its Q2 revenue came in sharply below its expectations.

Nvidia blames gaming revenue for weakness

Nvidia generated $6.70 billion in revenue, as per the preliminary second-quarter report it published this morning. This compares to $8.10 billion it had guided for in May.

Much of the weakness, as per the semiconductor giant, was related to “gaming” that tanked 44% sequentially. Data Centre revenue also missed expectations on supply constraints. Nonetheless, the long-term gross margin profile, CFO Colette Kress confirmed, was intact.

We have slowed operating expense growth, balancing investments for long-term growth while managing near-term profitability. We plan to continue stock buybacks as we foresee strong cash generation and future growth.

The news comes more than a week after the U.S. House of Representatives approved the $280 billion bill to boost microchip production.

Jim Cramer reacts to the Nvidia preliminary Q2 report

The preannouncement was more alarming considering gaming makes up the largest chunk of revenue for the chip company. Still, Jim Cramer remains constructive on Nvidia as it’s a “big part” of many industries. This morning on CNBC’s “Squawk on the Street”, he said:

I’m not saying this is disastrous because the stock multiple has shrunk. I’m saying that it’s a reminder that gaming was very much a COVID phenomenon. It’s so yesteryear. It’s a clearing event for Nvidia. It’ll now be viewed as an industrial and data centre company.

Interestingly, Nvidia, in Q1, had its revenue from “data centre” surpass gaming for the first time in its history. Bulls, therefore, would argue that the Santa Clara-headquartered firm is well-positioned to offset the post pandemic decline in gaming by expanding share in the data centre.

Nvidia is scheduled to report its fiscal Q2 results on August 24th. Down more than 40% year-to-date, Wall Street is convinced shares of Nvidia are worth buying as reflected in its consensus “overweight” rating on the stock.

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