What happened

Shareholders of Nvidia (NVDA 1.75%) lost ground to the market on Friday as the stock fell 4% by 11 a.m. ET compared to a 1% drop in the S&P 500. That move added to significant short-term losses in the computing chip specialist. Shares are down nearly 40% so far in 2022.

The decline was tied to a wider drop among tech stocks, but also reflects fears about some bad news on the way in the company's upcoming earnings report.

So what

Nvidia stock wasn't alone in Friday's drawdown. The wider Nasdaq index fell 1.8% in early trading, dragging down many of the biggest tech leaders.

Investors are also worried that the chip giant will issue a weaker outlook when it announces earnings results on the afternoon of Wednesday, Aug. 24. We already know from peers including Microsoft that the video game industry is slowing.

Data center spending might be following the same path, too, as companies adjust to a more-difficult selling environment in areas like streaming video and social media. Finally, Nvidia might see a pinch from weaker PC sales compared to booming results a year ago.

Now what

Investors are bracing for slower growth and a sharp drop in profitability when Nvidia makes its announcement next week. The big question is whether the company can quickly return to its prior footing that paired soaring sales with expanding gross profit margin. Friday's stock price decline seemed to reflect concerns that this rebound will take time. But investors shouldn't focus too much on those short-term demand swings.

Nvidia has a diverse portfolio that can hold up to temporary slumps even across a few niches. The long-term outlook is bright, meanwhile, in gaming, data centers, and its autonomous-driving tech.

That's why investors shouldn't let quick stock-price declines like this rattle their investing theses. Nvidia isn't guaranteed to win as more demand shifts toward cloud computing. But it has a good shot at achieving solid earnings and sales growth over time.