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This Is Not Why NVIDIA Corporation Stock Dropped After Earnings

After graphics specialist NVIDIA (NASDAQ: NVDA) reported strong financial results, shares of the company shed almost 7%. In a recent column, I attributed this drop to extremely high investor expectations rather than to any fault in the company's financial performance. Indeed, NVIDIA delivered quarterly results and issued forward guidance that exceeded published analyst estimates.

Investors, probably anticipating that NVIDIA would beat such estimates, may simply have had unrealistic expectations.

Image source: NVIDIA.

That said, I've seen some speculation that NVIDIA's financial guidance for the coming quarter wasn't as good as it could've been if NVIDIA were planning to launch new gaming-oriented graphics processors based on its new Volta architecture, leading to the post-earnings decline in NVIDIA's stock price. 

I mostly disagree with that. Here's why.

The reality of the situation

NVIDIA CEO Jensen Huang strongly implied on the earnings call accompanying the earnings release that gaming-oriented graphics processors based on the company's new Volta architecture, which is now shipping in the company's data center-specific products, won't arrive this year.

Graphics processing units, such as the ones that NVIDIA sells, are well suited to "mine" (that is, to generate) these cryptocurrencies, which has led many to buy such products for the express purpose of generating cryptocurrencies. 

Right now, because of the continued explosion in cryptocurrency prices, demand for graphics processing units has appeared to outstrip supply for quite some time, particularly in the retail channel (many gamers buy graphics cards as individual components rather than as parts of gaming-oriented personal computers). 

This has led to frequent stock-outs of certain graphics processors at said retailers (both brick and mortar and online), as well as vastly inflated graphics processor prices. 

Only recently has it become possible for gamers to buy NVIDIA's GeForce GTX 1060 and 1070, the company's most popular gaming cards and its best cryptocurrency-mining GPUs, at close to MSRP from major brick-and-mortar retailers and online shops.

On NVIDIA's earnings call, Huang even said that "there were a lot of shortages" of its GeForce GTX gaming graphics processors worldwide because of "small miners that buy GeForces here and there."

Indeed, one major PC component vendor, Newegg.com, seems to be resorting to more aggressively pushing bundles of GeForce gaming GPUs with other components that are gamer-specific, such as motherboards and processors, to try to make sure that gamers -- not miners -- can buy these cards.

Moreover, Huang said that "it's also the case that there were gamers whose needs and demand were not filled last quarter," which could drive robust sales of cards to gamers in the coming quarters.

Higher up in NVIDIA's product stack, the company reduced the price of its GeForce GTX 1080 from an MSRP of $599 to $499, and it introduced the GeForce GTX 1080 Ti, which offers a sizable performance boost from the 1080, at $699. These two GPUs don't seem to have been affected much by the cryptocurrency mining craze.

Both the 1080 price reduction and the introduction of the 1080 Ti happened about five months ago, and the length of a product cycle in high-end gaming graphics processors is often on the order of a year, possibly more.

While rolling out Volta-based gaming cards may have improved NVIDIA's revenue guidance somewhat, I think NVIDIA has taken appropriate action to keep its high-end gaming processor lineup sufficiently fresh, so such a product introduction probably wouldn't have affected NVIDIA's guidance as much as some might believe.

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Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has a disclosure policy.