Demand Headwinds Finally Catch Up to Nvidia; Shares Look Attractive Relative to Unchanged $200 FVE

Wide-moat Nvidia reported first-quarter results that came in ahead of our expectations. Gaming and data center segments remained the primary growth drivers. However, management noted second-quarter revenue will be negatively affected by $500 million to account for COVID-19 lockdowns in China and the stopping of sales to Russia. Amidst the broader technology sector selloff, shares of Nvidia are down 44% year-to-date, and now trade at a discount to our unchanged fair value estimate of $200 per share. Gaming revenue is expected to decline sequentially in the second quarter, as: demand softens in Europe (related to the war in Ukraine) and China (as a result of lockdowns); channel inventory has nearly normalized; and the firm transitions to a new GPU architecture. We note this is consistent with our growth assumptions for the gaming segment this year. Despite near-term headwinds, we view Nvidia as our top fabless semiconductor pick, as we think the firm’s data center business will prove resilient to macroeconomic headwinds.