What happened

Shares of NVIDIA (NVDA -1.99%) fell as much as 20.1% on Friday morning following the semiconductor company's mixed third-quarter earnings report. By 11:50 a.m. EST, the stock had recovered slightly to a 17.3% drop.

So what

The inveterate designer of graphics processors saw third-quarter sales rise 20% year over year, landing at $3.18 billion. Earnings jumped 38% higher to $1.84 per diluted share. The analyst consensus had been calling for earnings of roughly $1.71 per share on revenue in the neighborhood of $3.24 billion, so it was a mixed bag.

Looking ahead, NVIDIA's management set its fourth-quarter revenue guidance at approximately $2.7 billion. Bottom-line guidance stopped near $1.53 per share. For this period, your average analyst had been expecting earnings of $1.81 per share on sales near $3.4 billion and the guidance targets fell far short on both of these counts.

NVIDIA's corporate logo in the form of a custom-cut lawn.

Image source: NVIDIA.

Now what

NVIDIA CEO Jensen Huang said that artificial intelligence drove his company's data center sales to record highs, but a pronounced lack of interest in cryptocurrency mining tools left the shipping channels overstuffed with unsold graphics cards. NVIDIA's partners must work through their excess inventories before ordering new chips and the company's own unsold inventories ballooned 40% higher over the last three months. That's not a seasonal trend -- last year, NVIDIA's inventories increased by 0.2% in the third quarter.

In an effort to mollify its shareholders, NVIDIA also raised its dividend payouts by 7% and added $7 billion to its nearly exhausted share buyback program. Many stock owners still focused on the ongoing revenue slowdown and sent NVIDIA's share prices down to the basement.