Near-Term Gaming and Data Center Headwinds Look Manageable for Nvidia; Shares Undervalued

Wide-moat Nvidia reported third-quarter sales slightly ahead of management’s guidance, with gaming modestly ahead of our expectations, whereas the data center segment was negatively affected by the recent U.S. government export restrictions on certain products (A100 and H100 data center graphics processing units) to China. The gaming segment remains challenged following the crash in cryptocurrency prices and associated mining demand for GPUs in addition to weaker macroeconomic conditions and COVID-19 lockdowns in China. Shares are trading at a discount to our unchanged $200 fair value estimate, and we think long-term investors should find Nvidia attractive, as we believe the firm’s data center business will prove more resilient to macroeconomic challenges.