What happened
Shares of Nvidia (NVDA 4.35%) were trading down 5.5% as of 12:22 p.m. ET on Tuesday. Several analysts cut their price targets on the stock. This follows Nvidia's disclosure on Monday that revenue for the fiscal second quarter would come in below expectations.
Year to date, Nvidia stock is down 42% over concerns that slowing demand for graphics chips used by gamers in their PC gaming rigs would pressure Nvidia's top line. That has now come to fruition. Will the situation get worse before it gets better?
So what
One analyst downgraded the stock from buy to hold, but most analysts maintained their previous ratings on the stock. Out of 48 Wall Street analysts who cover Nvidia, 81% rate the stock a buy.
Nvidia's soaring growth in the gaming segment over the last few years was partly due to the industrywide chip shortage, which drove up average selling prices. Nvidia reported decelerating growth in gaming in the previous quarter, and analysts began sounding the alarm bells that lower selling prices for graphics processing units (GPUs), which are also used by cryptocurrency miners, could harm sales.
Investors who have been following the decline in GPU prices over the last few months shouldn't be surprised. It seems the market was already expecting Nvidia to report weak sales, as the stock is still up about 6% over the last month, although the news on Monday gave back some of the stock's recent gains.
Now what
Investors should prepare for a couple of weak quarters from Nvidia's gaming business, which makes up nearly half of its total revenue.
Management expects to report revenue of $6.7 billion for the fiscal Q2. This is down from its previous guidance of approximately $8.1 billion. The new guidance represents a decline of 19% over the previous quarter and an increase of 2% over the year-ago quarter.
On the bright side, management said it would continue repurchasing shares. Nvidia executives expect the company to generate plenty of cash flow and deliver future growth.
