Nvidia Stock (NVDA) Could Slide if Q1 Inventory Numbers Surprise, Warn Analysts

Investors are being urged to keep a close eye on semiconductor giant Nvidia’s (NVDA) balance sheet when it releases its Q1 earnings later this week.

While it may be tempting to pore over sales numbers and listen to talk of tariffs and export curbs, a bigger story may be in the company’s inventory figures and what that means for customer demand.

Inventory Focus

Analysts have been somewhat spooked by the recent Q3 results from server maker Super Micro Computer (SMCI) which showed that its days of inventory has increased by three days to 81 compared with the prior quarter. Days of inventory measures the average number of days it takes for a company to sell its entire inventory.

Days sales outstanding were up by nine days quarter over quarter. This measures how long it takes a company to collect payment from its customers after a sale.

“Analysts used to say that Super Micro was a good proxy for demand for Nvidia,” said Russ Mould, investment director at AJ Bell in the U.K. “If a company’s big customers have too much inventory, then the danger is, at some stage, demand from that customer starts to slow, a trend which can show up in the supplier’s balance sheet, via both inventories and trade receivables.”

He said Nvidia’s own inventory numbers will be worth watching given that it had its own ‘inventory bulge’ in 2022 that took a toll on its profit momentum.

Payments Pressure

“But it has done a good job since. Inventory may be rising but given the strong sales growth that is hardly a surprise and inventory days are back to pretty normal levels, by historic standards,” said Mould.

However, trade receivables are rising – these are revenues possibly booked by Nvidia but where payment has not yet been received.

“Nvidia’s sales growth is currently so rapid that days receivable are not substantially above historic norms, though they are higher at 198 days against a five-year average of 157,” said Mould. “There could be trouble ahead if customers start to slow their purchases for any unexpected reason.”

Kathleen Brooks, research director at XTB said she will focus on the concentration of Nvidia’s customer base. Particularly sovereign customers like Singapore. “If there are pockets of sales growth weakness, this could hurt Nvidia’s share price,” she said.

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