Home Cryptocurrency Should Investors Worry about NVIDIA's Gaming Headwinds?

Should Investors Worry about NVIDIA’s Gaming Headwinds?

NVIDIA’s gaming headwinds

Previously, we saw that NVIDIA (NVDA) revised down its fiscal 2019 fourth-quarter revenue guidance to the pre-crypto level of $2.2 billion because of gaming and data center headwinds. NVIDIA earns more than 50% of its revenue from gaming. In its previous guidance of $2.7 billion, it excluded sales of mid-range Pascal GPU (graphics processing unit), which account for 30% of its gaming revenue. As the company has cut its revenue guidance further, it probably means the sales of high-end GPUs have also decreased.

B3_Semiconductors_NVDA gaming revenue Q418

In its revised guidance, NVIDIA stated that sales of some of its high-end Turing-based GeForce RTX GPUs have been lower than expected. It also stated that gaming GPU demand has deteriorated, particularly in China (FXI).

Slow adoption of Ray Tracing

Some Wall Street analysts blamed NVIDIA’s poor execution of ray tracing technology for slow adoption of RTX GPUs. While launching the Turing GPU in September 2018, NVIDIA stated that the real-time ray tracing technology is ahead of its time, which means that the current gaming ecosystem was not ready to leverage the potential of real-time ray tracing.

A few days after the launch, the higher-end GeForce RTX 2080 and 2080 Ti GPUs experienced technical trouble with several reports of crashes and blue screen, which forced NVIDIA to stall shipment of its Founders’ Edition until it worked out a solution. The third-party reviews of RTX GPUs showed that the GPU did not provide a significant performance boost on existing games.

StreetInsider.com article, citing Raymond James analyst Chris Caso, stated that NVIDIA’s failure to attract developer support for ray tracing and the lack of a proper ecosystem slowed the adoption of Turing GPUs. However, some analysts are optimistic about Turing and believe that the technology will catch up in a few months as more PCs and games support real-time ray tracing.

In an interview with Engadget, rival Advanced Micro Devices’ (AMD) chief technology officer, Mark Papermaster, agreed that ray tracing is the future of the graphics industry but stated that the technology isn’t delivering value in the existing ecosystem. The technology has to go through a complete development cycle, and AMD will introduce ray tracing when an ecosystem is in place with many games and plenty of developers using it.

Next, we will look at NVIDIA’s data center headwinds.

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