Another day, another tough run for the market. With the Nasdaq Composite down 2.9% as of 1:10 p.m. ET, tech stocks were in all-out retreat ahead of first-quarter earnings reports. Semiconductors, in particular, were under pressure. Nvidia (NVDA -0.89%) was down 4.4%, slightly better than its 6% drop earlier in the day.
High-growth stocks have been punished in recent months because of the Federal Reserve's promise to aggressively raise interest rates this year to "fight inflation." Tech investments are collateral damage of this action, since higher interest rates lower the present value of risk assets, like stocks.
But Nvidia and the rest of the semiconductor industry are getting a double whammy. Investors, egged on by some analysts, are worried about a slowdown in tech hardware sales in 2023 -- in spite of the chip industry itself indicating there's no end in sight for the global chip shortage. Nevertheless, after an epic surge in consumer spending during the first two years of the pandemic, households might pare back their purchases. That could hurt Nvidia in the short term, as the company derived 46% of its sales from video gaming rigs last year.
Additionally, some investors are worried about a big change in the cryptocurrency market. Ethereum, the second largest crypto, is moving to a proof-of-stake model later this year. That could reduce the number of GPUs (Nvidia's bread and butter) needed in the mining of Ethereum. It's presently unknown just how much of Nvidia's revenue comes from crypto mining.
Nvidia's next earnings report isn't due until May 25, so shareholders will likely have to endure more turbulence until the company gets a chance to weigh in on the present financial discussion. For reference, though, CEO Jensen Huang said to expect year-over-year Q1 revenue growth of 43%, which is at the midpoint of guidance.
As the year progresses, that growth rate could moderate -- or even reverse course -- mighty quickly, like it did in 2018. At that time, another crypto implosion and the U.S.-China trade war made a cyclical slump in chip sales even worse for Nvidia.
But if you believed in the company's long-term trajectory then, it was a great time to be a buyer. I think the same is the case now.