NVIDIA's (NVDA 5.03%) stock was humming along nicely in 2018 and had gained about 45% as of the very beginning of October, but the company's shares took a sharp plunge the rest of the month and into November as investors fled tech stocks.
The initial share price drop was then followed by lower-than-expected guidance for the graphics chipmaker's fourth quarter, which caused NVIDIA's stock to tank once again and left the company's share price down about 15% so far this year.
Investors got scared
The broader market took a hit in October as investors were worried about a trade war between China and the U.S., and fears of rising interest rates led some investors to flee stocks.
Many tech stocks felt the brunt of this drop, and NVIDIA was no exception. The company's shares plummeted 25% last month. Investors were particularly harsh to semiconductor stocks during the month, as NVIDIA competitor Advanced Micro Devices failed to impress with its third-quarter results. Investors even pushed down Texas Instruments' shares after the company beat earnings expectations; investors weren't happy with the company's lackluster sales growth.
All of this caused investors to fear a broader slowdown in the semiconductor market, and NVIDIA's shares tanked as a result. And when NVIDIA released its third-quarter results, investors panicked even more.
NVIDIA grew revenue by 21% year over year in the quarter; GAAP net income popped by 47%, and adjusted earnings of $1.83 per share were up 38% from the year-ago quarter. Unfortunately, all of that good news wasn't enough for investors -- NVIDIA's share price fell nearly 17% because of the company's fourth-quarter guidance.
NVIDIA's management forecast revenue of about $2.7 billion, which is lower than analysts' consensus estimate of $3.4 billion and represents a 7% year-over-year decline. NVIDIA CEO Jensen Huang said that the forecast drop is a result of slowing demand and falling prices for cryptocurrency graphics cards. But Huang remains optimistic that the market will stabilize over the next two quarters, saying on the conference call, "[T]he crypto hangover has left the industry with excess China inventory. It will take one or two quarters to work through it."
Stay the course
While a drop in revenue guidance is never fun, investors should remember to take a look at NVIDIA's overall business and how well it's performing. If the dip in sales from the cryptocurrency market doesn't become a long-term trend, then there's nothing for investors to panic about. If the company's sales and earnings start slowing significantly over the course of several quarters, then that would be the time to be concerned -- but that's not what's happening right now.
Despite the recent share price drop, NVIDIA's main revenue segments are performing well, and there haven't been any significant changes to the company's underlying business or management -- all of which means that long-term investors should take this recent stock price drop in stride.