Nvidia shares dip on predicted decline in data center sales

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Nvidia Corp shares declined nearly 3% on Wednesday after company executives said data center chip sales would fall slightly in the fourth quarter.

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The dip came after the Santa Clara, California company forecast overall fourth-quarter revenue above Wall Street expectations on Wednesday, betting on robust demand for its graphic chips for gaming devices and data centers.

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The chipmaker said it expects current-quarter revenue of $4.80 billion, plus or minus 2%, compared with analysts’ average estimate of $4.42 billion, according to IBES data from Refinitiv.

Nvidia also beat revenue expectations for the third quarter as gaming business revenue jumped 37% to $2.27 billion from a year earlier, beating FactSet estimates of $2.06 billion. But Chief Financial Officer Colette Kress said that “industry-wide capacity constraints” meant it could be months before supplies of Nvidia’s newest line of gaming chips could catch up with demand.

Besides high-end gaming devices, Nvidia’s graphics chips are being used in data centers to speed up computing for artificial intelligence work such as image recognition, which helped it eclipse rival Intel Corp’s market capitalization earlier this year.

Revenue from the data center segment more than doubled to $1.9 billion, compared with FactSet estimates of $1.84 billion.

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Nvidia shares dropped after Kress told investors on a conference call that data center revenue would decline in the fourth quarter.

The company said revenue from Mellanox, the Israeli networking chip firm it acquired last year, contributed “approximately a third” of data center segment revenue in the third quarter, but that some of the growth came from sales to an unnamed Chinese customer that would not repeat in the fourth quarter.

Earnings per share were $2.91, above analyst estimates of $2.57, according to Refinitiv data.

Earlier in October, Nvidia laid out a multi-year plan to create a new kind of chip for data centers, looking to grab a bigger share of the growing data center chip market.

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