![]() As a result, Nvidia posted an adjusted gross margin of 45.9%, down from its corporate average of about 67% over the past four quarters. Nvidia adjusted gross margins % consensus estimates (S&P Cap IQ)Īs seen above, the company used Q2 as an opportunity to write down its inventory massively, which impacted its adjusted gross margins. Nvidia De-risked Its Q2 For A Massive Reset ![]() Therefore, we urge investors to capitalize on the current malaise to add more positions before NVDA's underlying metrics emerge from its nadir a few quarters from now. Notwithstanding, its valuation also seems more reasonable now, coupled with the expected improvement in its operating profile moving ahead. Our valuation analysis on NVDA suggests it's still priced at a premium, indicating the market's confidence in management's ability to execute its growth thesis. However, we are confident that its June/July lows should hold robustly, in line with our assessment of the broad market bottom. We posit that NVDA should likely remain in the penalty box for a while, as the market remains tentative over the current semi industry downturn. Therefore, its profitability profile should improve markedly through FY24. Investors should note that management proffered sanguine guidance that suggests Nvidia's significant inventory writedowns in Q2 are likely a one-off event, given its massive prepayments last year. ![]() Furthermore, the post-Q2 market reaction also seems constructive, as we posit that Nvidia's near-term headwinds have been adequately de-risked. However, we have observed constructive price action on NVDA's medium-term trend over the past three weeks. ![]() We updated in our pre-earnings article on NVIDIA Corporation ( NASDAQ: NVDA) that investors should be wary about adding the accelerated computing behemoth, given the challenging dynamics coupled with its embedded growth premium. ![]()
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