Nvidia sinks as chip maker's warning on revenue and gaming weakness drags tech shares

Nvidia sinks as chip maker's warning on revenue and gaming weakness drags tech shares
In this photo illustration the Nvidia Corporation logo seen displayed on a smartphone screen.Rafael Henrique/SOPA Images/LightRocket via Getty Images
  • Nvidia shares fell as much as 9% Monday after the chip maker cut its Q2 revenue guidance.
  • The company now sees gaming revenue of $6.7 billion, less than its previous call of $8.1 billion.
  • Morningstar said it anticipated slowing in the gaming segment following the crash in crypto prices.

Nvidia shares sharply dropped Monday after the chip maker said a slowdown in gaming-related sales will lead to quarterly revenue coming in less than Wall Street anticipated.

The slide of as much as 9% sparked losses in the broader tech sector, weighing on key US equity benchmarks. The stock dropped to an intraday low of $172.42, the weakest price since July 27, before trimming the intraday decline to 8%.

The company yanked its second-quarter revenue forecast down to $6.7 billion from $8.1 billion previously in a statement released Monday, citing weakness in the gaming segment.

"Our gaming product sell-through projections declined significantly as the quarter progressed," Jensen Huang, Nvidia's founder and CEO, said in the statement. "As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our Gaming partners to adjust channel prices and inventory."

Gaming sales fell 44% to $2.04 billion from the first quarter, and declined by 33% from the second quarter a year earlier. The company also said it took second-quarter charges of $1.32 billion on inventory reserves.


Nvdia's warning comes as investors have broadly been concerned about how consumers and businesses are holding up in the face of soaring inflation. After Nvidia shares fell, the tech-rich Nasdaq Composite turned lower. The S&P 500 also flipped down as its information technology sector lost more than 1% during the session.

"We had been anticipating a slowdown in the gaming segment following the crash in cryptocurrency prices and associated mining demand as well as weaker macroeconomic conditions, and we previously had gaming sales sequentially declining for the remainder of 2022," Morningstar analyst Abhinav Davuluri said in a research note Monday.

Davuluri pointed out rival chipmaker AMD's recent and softer outlook for its graphics processing unit. AMD shares were off 2.5% during Monday's trade.

"We think Nvidia could be due for a few challenging quarters, which could create a more attractive entry point," said Davuluri. The company's data center business should "prove more resilient" to macroeconomic headwinds, he added.

Nvidia said Monday its second-quarter data center revenue was $3.81 billion, up 1% from the first quarter and up 61% from the prior-year period.