Nvidia Cuts Q4 Sales Guidance, Chips Stocks Tumble

Shares of NVIDIA Corporation NVDA were trading lower by more than 15 percent Monday morning after the semiconductor company cautioned investors its fourth-quarter results will come in worse than previously expected due to poor performance in the Gaming and Datacenter business segments.

What Happened

Nvidia said it expects fourth-quarter revenue to come in at $2.2 billion, which marks a decrease from management's prior guidance of $2.7 billion. The company said its revenue revision is due to:

• A deterioration of macroeconomic conditions especially in China, which negatively impacted consumer demand for its gaming GPUs;
• Lower than expected sales of high-end GPUs with the new Turing architectures; and
• Datacenter customers who were expected to sign contracts in December decided instead to take a "more cautious approach."

Why It's Important

Nvidia's announcement coupled with a similar sales warning from Caterpillar Inc. CAT contributed in part to the Dow's sell-off Monday morning. It's particularly concerning that the two companies cited China-related headwinds, according to Baird's Bruce Bittles. He told CNBC investors "will need to feel more positive that trade worries are on the decline and global growth concerns are abating."

Here is a quick summary of how other chip and semiconductor peers performed following Nvidia's announcement:

• Intel Corporation INTC down 1.4 percent.
• NXP Semiconductors NV NXPI down 1.5 percent.
• Micron Technology, Inc. MU down 1.7 percent.
• QUALCOMM, Inc. QCOM down 1.6 percent.
• STMicroelectronics NV STM down 3.4 percent.
• Advanced Micro Devices, Inc. AMD down 8 percent.

What's Next

Nvidia CEO Jensen Huang said in the press release the foundation of its business remains "strong and more evident than ever." The markets the company services, namely gaming, design, HPC, AI and autonomous vehicles, remain "important, growing and will be very large."

"We have excellent strategic positions in all of them," Huang said.

Nvidia traded down 15.4 percent to $135.39 at time of publication.

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