Is NVIDIA (NVDA) in Decline?

One of Silicon Valley’s biggest cash cows NVIDIA (NVDA) could be in decline. Frighteningly, NVIDIA’s decline began before the Silicon Valley Bank collapse.

For example, NVIDIA’s quarterly revenues fell from $7.643 billion on 1 January 2022 to $6.051 billion on 1 January 2023. Similarly, the quarterly gross profit fell from $5 billion on 31 January 2023 to $3.833 billion on 31 January 2023. Finally, the quarterly operating income fell from $2.97 billion on 31 January 2022 to $1.256 billion on 31 January 2023.

Frighteningly, further declines could be coming. Stockrow estimates NVIDA’s revenues shrank by -20.83% in the quarter ending on 31 January 2023. That was the second quarter of double-digit revenue shrinkage at NVIDIA. The revenues shrank by -16.50% in the quarter ending on 31 October 2022.

In contrast, NVIDIA’s grew by 52.77% in the quarter ending on 31 January 2022. NVIDIA’s revenue growth reversed over the past year.

How much Money is Nvidia (NVDA) making?

The good news is NVIDIA is still making money and generating cash. The bad news is, NVIDIA Corporation (NVDA) makes less money and cash.

For example, NVIDIA’s quarterly operating cash flow fell from $3.033 billion on 31 January 2022 to $2.248 billion on 31 January 2023. Similarly, the quarterly ending cash flow fell from $702 million on 31 January 2022 to $589 million on 31 January 2022.

NVIDIA can generate enormous amounts of cash. For example, it reported a quarterly ending cash flow of $3.887 billion on 30 April 2022. Conversely, the quarterly ending cash flow fell from $4.650 billion on 31 July 2021 to -$874 million on 31 July 2022.

Interestingly, NVIDIA still makes enormous investments. For instance, it reported a quarterly investing cash flow of $3.148 billion on 31 October 2022. The quarterly investing cash flow rose from $1.618 billion on 31 July 2022 and $2.612 billion on 30 April 2022. However, the quarterly investing cash flow fell to -$3 million on 31 January 2023.

NVIDIA has less cash, the cash and short-term investments fell from $21.208 billion on 31 January 2022 to $13.296 billion on 31 January 2023. Therefore, NVIDIA is generating less cash and struggling to keep its cash.

How Much Debt Does NVIDIA (NVDA) have?

NVIDIA’s debts grew slightly in 2022. The total grew from $10.946 billion on 31 January 2022 to $11.129 billion on 31 January 2023.

NVIDIA is paying off debts. It reported a quarterly financing cash flow of -$1.656 billion on 31 January 2023. The quarterly financing cash flow rose from -$3.753 billion on 31 October 2022 and rose from -$745 million on 31 January 2022.

NVIDIA last borrowed money in 2021. It reported a quarterly financing cash flow of $4.501 billion on 31 October 2021. Hence, NVIDIA is not borrowing in a tech decline, which is smart.

NVIDIA is losing value

Strangely, NVIDIA Corporation (NASDAQ: NVDA) is losing value as its share price rises.

For example, NVIDIA’s total assets fell from $44.187 billion on 31 January 2022 to $41.182 billion on 31 January 2023. In contrast, NVIDIA’s share price grew from $219.17 on 11 April 2022 to $264.92 on 11 April 2023.

What is happening here? Why is NVIDIA’s share price rising as its value falls. I suspect investors are seeking alternatives to internet and social media stocks such as Amazon (AMZN), Meta Platforms (FB), Microsoft (MSFT), and Alphabet (GOOGL).

Another possibility is that NVIDIA has not split its stock. Alphabet (GOOG) split its stock on 15 July 2022, for example. Similarly, Amazon split its stock on 6 June 2022. Hence, two tech leaders split their stock in 2022. NVIDIA has not split which makes it more attractive to risk-adverse investors.

Why is NVIDIA Losing Value?

Current events are hurting NVIDIA (NVDA). In particular, the US Commerce Department is restricting sales of GPUs and other chips because of the Ukraine War.

For example, the Commerce Department is blocking sales of NVIDIA’s A100 Tensor Core GPUs, and H100s to Chinese customers, NVIDIA reports. The Commerce Department is also restricting “sales of any chips of equivalent power or systems that incorporate them,” Ars Technica reports.

Commerce Department officials fear Chinese firms will sell NVIDIA chips to the Russian military, which could use them to operate weapons systems. In particular, the Commerce Departments want to stop Russians from using artificial intelligence (AI) to run weapons. The ban includes Russian, Hong Kong, and Chinese markets, Axios reports.

To elaborate, artificial intelligence needs powerful chips, such as NVIDIA’s Graphics Processor Units (GPUs) to operate. Essentially, no GPU means no AI. Hence, Vladimir Putin’s aggression is cutting NVIDIA off from some enormous markets.

How the Chinese Foreign Ministry can Boost NVIDIA

Thus, the end of the war or US sanctions could boost NVIDIA. I think NVIDIA bulls bet Chinese Foreign Minister Qin Gang’s efforts to negotiate an end to the Ukraine will succeed.

I think Qin’s efforts could work because both the Russians and Ukrainians lack the resources to win the war. For example, Ukrainian Troops are rationing artillery shells on the battlefield, The Washington Post reports.

Meanwhile, the Russian Army is pulling 60-and-70-year-old tanks out of storage yards to reequip its forces. The Russian Army is using old armor because Ukrainian forces destroyed 40% of its armor, the Institute for Strategic Studies estimates.

Russian industry cannot make enough tanks for its army. Russia’s only tank factory, UralVagonZavod, is only producing around 20 tanks a month in 2023, Sandboxx News claims. Yet Russian forces have lost 1,928 tanks in Ukraine, Oryx estimates. I calculate it will take 96.4 months or 8.03 years for UralVagonZavod to replace the lost Russian tanks.

Therefore, I predict some of Indian or Chinese-negotiated armistice or truce in Ukraine sometime this year. The truce will come because of exhaustion and US and British leaders will not be able to stop it.The truce could help NVIDIA by ending the war and sanctions.

Notably, Ukrainian President Volodymyr Zelenskyy has written to Indian Prime Minister Narendra Modi seeking help, India Today reports. That help could include humanitarian aid or truce negotiations.

 Silicon Valley’s Woes Hurt NVIDA

Beyond the war, cutbacks in Silicon Valley can hurt NVIDIA (NVDA). For example, Meta CEO Mark Zuckerberg told employees to expect job cuts and a $15.4 billion drop in ad sales in 2023, DataCenter Knowledge reports.

In response, Meta Platforms is implementing its first job cuts since they formed Facebook in 2004. They want to cut 13% of Meta’s workforce. Meta Platforms (META) is not alone. Alphabet management plans to cut 6% of the company’s global workforce, TechCrunch reports. Similarly, Microsoft (MSFT) plans to cut 5% of its workforce and Amazon could eliminate 18,000 people, TechCrunch estimates.

These layoffs can hurt NVIDIA because each layoff means one less computer and one less GPU. That shrinks NVIDIA’s potential market.

Are Robots and AI NVIDIA’s future?

Non-tech companies are also making big tech cutbacks. For example, Volkswagen and Ford (F) stopped providing financial support to self-driving vehicle company Argo AI in October 2022. This can hurt NVIDIA, because autonomous vehicles are a potential market for its chips. Yet companies are spending less money in that field.

However, Argo AI’s demise could help NVIDIA. To explain, NVIDIA is developing its own end-to-end platform for autonomous vehicles, NVIDIA DRIVE.

There are some other growing markets NVIDIA can tap. Humanoid robots, for example, Tesla’s Elon Musk thinks there is a market for those constructs. Given Musk’s success at Tesla (TSLA) humanoids can be the product of the future. Particularly, with growing labor shortages.

Artificial intelligence is another growing market for NVIDIA. For example, Elon Musk has purchased almost 10,000 GPUs for a Twitter AI project, Business Insider claims. GPUs can provide the enormous amounts of computation power larger-scale AI models require.

How Safe is the NVIDIA Dividend?

The attractions at NVIDIA (NVDA) are high-share prices and dividends. The share price is rising again, despite Silicon Valley’s troubles.

NVIDIA has scheduled eight 4₵ dividends between 30 June 2023 and 24 March 2025. Hence, NVIDIA is still a dividend stock, but the dividend is low. NVIDIA shares were offering a 16₵ forward dividend and a 0.06% forward dividend yield on 11 April 2023.

In conclusion, I think NVIDIA is still a value investment that Mr. Market prices fairly. However, it is a value that could face losses as the tech business shrinks.