Nvidia Stays in the Game

Nvidia graphics cards for sale in California


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For Nvidia, no bad news counted as good news.

The once-hot company has been one of the worst-performing chip stocks this year. Its current market value of about $90 billion is barely half its peak from just 10 months ago.

Blame a perfect storm of bloated inventories of graphics chips left over from the crypto-mining boom and a major slowdown in capital spending by cloud giants that use Nvidia’s processors in their data centers.

Escalation of the trade fight between the U.S. and China hasn’t helped the mood around chip stocks either. Nvidia’s shares are down 11% over just the past month.

That set the stage for good-enough results for Nvidia’s fiscal second quarter, reported late Thursday. Revenue fell 17% year over year to about $2.6 billion, which was still a bit better than the 18% drop expected by analysts. Operating income of $802 million was about 7% ahead of Wall Street’s targets.

Nvidia’s forecast of $2.9 billion in revenue for the current quarter was a bit light, coming about 3% below analysts’ targets. But the company also projected a notable improvement in operating margin for the period. That suggests that its pricing power is returning following a few quarters spent trimming inventory. Nvidia’s share price rose 7.3% Friday.

To be sure, Nvidia still has a lot of work ahead. Data-center revenue logged a record 14% drop to $655 million in the quarter. This segment makes up only about a quarter of Nvidia’s total revenue, but it is closely watched by investors given the importance of artificial-intelligence systems at cloud-computing giants.

Data-center sales will need a strong recovery in the fourth quarter just to keep the overall business flat with last year. The same holds for the company’s flagship videogaming segment that sells graphics processors designed for gaming PCs. Both scenarios are plausible but far from certain.

Nvidia isn’t only competing against other chip makers but also its own recent high score.

Write to Dan Gallagher at dan.gallagher@wsj.com

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