What happened

Nvidia (NVDA -2.68%) stock is bound for a volatile week this week, and those price swings started on Monday. The chip giant's shares had fallen 4% by 11 p.m. ET compared to a 1.6% drop in the wider market.

That market decline was a key factor in Nvidia's slump, but investors also have some specific concerns about an upcoming earnings report for the second quarter of fiscal 2023.

So what

Investors don't need to look much further than the Nasdaq index to explain most of Nvidia's weak Monday performance. The tech-heavy index dove 2% in early trading, dragging down industry giants like Microsoft and Advanced Micro Devices. In the context of roughly 3% declines for these peers, Nvidia's drop isn't unusual.

Nvidia is also scheduled to post a key earnings update on Wednesday afternoon, and investors are worried after the company warned of a sharp demand slump that impacted the period. Sales likely rose just 3% year over year, in fact, as people spent far less on gaming devices than management had expected.

Now what

Executives said in early August that the nearly $2 billion revenue shortfall required price cuts to keep inventory moving. That's one reason why Wall Street pros are looking for a big drop in profitability and earnings on Wednesday.

Investors will learn this week whether the second quarter will be the biggest hit that Nvidia will take as the company adjusts to shifting demand trends. The stock might bounce higher if management issues a bullish outlook for the second half of the year. Alternatively, investors might avoid shares if there is more perceived risk around the holiday shopping period.

Nvidia has been through several cyclical downturns and has always navigated through them to set new annual sales records. The more important factor to watch is the semiconductor giant's leadership position in attractive niches like gaming, data center tech, and artificial intelligence. As long as Nvidia can add more value in these areas, the stock is likely to perform well over long time periods.