Nvidia forecasts demand rebound, Wall Street not so sure

By Sonam Rai

(Reuters) - Nvidia Corp's forecast of a demand rebound by the end of the year calmed investor nerves and pushed its shares up 5 percent on Friday, but several Wall Street analysts said the outlook was "aggressive" given weak demand and the ongoing U.S.-China trade war.

The chip designer on Thursday forecast full-year revenue to be "flat or down slightly" from 2018, but Chief Executive Officer Jensen Huang said he expects China, gaming and self-driving vehicles to drive demand for its chips.

Rival chipmaker Advanced Micro Devices Inc had also forecast full-year revenue ahead of analysts' expectations. AMD, like Nvidia, is banking on its newest graphics and data center chips to bolster growth for the year.

Top chipmakers took a hit in the fourth quarter from a slowdown in China, triggered by the trade dispute. In January, Nvidia cut its fourth-quarter revenue estimate by half a billion dollars because of weak demand in China.

The dispute remains an overhang even as negotiators from the two countries are in talks ahead of a March 1 tariffs deadline.

While Nvidia could see a double-digit drop in revenue in the first two quarters, it is projecting a big 35 percent jump in the fourth quarter to make up for the lost sales, Loup Ventures analyst Gene Munster wrote in a note.

"The key question: is a 35 percent y/y growth exiting FY20 realistic? Our belief is that it is not realistic because it is similar to the growth rates during the crypto-boom," Munster said.

Demand for graphic chips from Bitcoin miners brought in hundreds of millions of dollars for Nvidia in 2018. But at the fag end of the year the boom evaporated, and, coupled with lower demand from China, led to a pile-up of unsold chips at distributors and retailers.

Nvidia will not be able to make up on all the crypto loss and could likely miss the full-year guidance, according to analyst Kinngai Chan from Summit Insights Group.

However, the company still has an opportunity in the form of selling technology for self-driving cars.

Nvidia's platform is being used by hundreds of companies involved in autonomous cars, including software developers, auto suppliers, sensor and mapping companies.

"Although this (self-driving) segment currently contributes relatively little to the top line, we acknowledge the opportunity Nvidia has to grow its presence in cars beyond infotainment as drivers seek autonomous features in newer vehicles," Morningstar analyst Abhinav Davuluri wrote.

(Reporting by Sonam Rai in Bengaluru; Editing by Saumyadeb Chakrabarty)