Please ensure Javascript is enabled for purposes of website accessibility

Why NVIDIA Stock Tumbled Today

By Timothy Green - Nov 19, 2018 at 3:27PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The market continues to digest abysmal guidance from the graphics chip leader.

What happened

Shares of graphics chip company NVIDIA (NVDA -2.51%) slumped on Monday, the second day of a post-earnings reckoning. NVIDIA's third-quarter report on Nov. 15 featured guidance calling for a fourth-quarter revenue decline, the result of an inventory correction following the implosion of cryptocurrency-related demand.

Adding fuel to the fire, the stock market was in sell-off mode on Monday. NVIDIA stock was down about 9.5% at 2:20 p.m. EST, while the Nasdaq Composite had shed about 3% of its value.

NVIDIA's GeForce RTX 2080 Ti graphics card.

NVIDIA's GeForce RTX 2080 Ti graphics card. Image source: NVIDIA.

So what

NVIDIA expects to report fourth-quarter revenue of $2.7 billion, plus or minus 2%. That's down 7.8% year over year at the midpoint, and far below analyst expectations of $3.4 billion. With NVIDIA's non-gaming segments likely to grow on a year-over-year basis, the gaming segment will slump by an even greater percentage.

The company blamed an excess of channel inventory due to disappearing demand from cryptocurrency miners. But like rival AMD, NVIDIA anticipated that cryptocurrency demand would vanish. NVIDIA CFO Colette Kress said in the second-quarter earnings call back in August that the company expected "a negligible contribution" from crypto-specific products in the future. The only conclusion is that NVIDIA underestimated how much of its gaming revenue was being driven by this temporary source of demand.

Now what

NVIDIA expects this inventory correction to be resolved by the end of the fourth quarter, according to CEO Jensen Huang in the third-quarter earnings call, but that may be overly optimistic. Analyst Romit Shah of Instinet thinks revenue could decline in NVIDIA's next fiscal year, the result of this inventory correction coupled with weak demand for NVIDIA's newest 20-series graphics cards.

AMD has a similar inventory problem, and a potential deluge of used graphics cards from cryptocurrency miners could make working through that inventory difficult. While it's possible NVIDIA's results could rebound quickly, investors should buckle up for a rough ride ahead.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

NVIDIA Corporation Stock Quote
NVIDIA Corporation
$166.94 (-2.51%) $-4.30

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/21/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.