What happened

Shares of graphics chip leader Nvidia (NVDA -0.46%) fell by more than 3% in early trading Monday, and were down by 1.9% as of 1:44 p.m. ET.

The Nasdaq Composite was also down more than 1% in early trading, giving back some of the strong gains it made Friday on the back of last week's optimistic wage inflation news. Monday's slide could merely be the result of traders taking some money off the table before more economic data arrives and the Federal Reserve holds its next meeting.

Many semiconductor names were down Monday, perhaps reflecting investors' fears of an economic slowdown. 

So what

High-multiple growth stocks as a class were having a tough time in early trading Monday as the 10-year Treasury Bond yield rose slightly to 4.04% after a week or so of steady declines. Nvidia, trading at a price-to-earnings ratio of 36, is still quite sensitive to interest rate moves, as higher rates will lower the value of any asset with most of its cash flows coming far into the future.

It also doesn't help when sales growth is stalling. Unfortunately, Nvidia has had to weather several headwinds over the past few months. These included a huge inventory glut of its older RTX graphics chips, as well as the U.S. government's decision in late August to ban sales of high-end data center GPUs to China.

Nvidia's gaming revenue declined by 33% in its fiscal 2023 second quarter (which ended July 31), and management forecast a 12% drop in overall revenue for its fiscal third quarter. Keep in mind, though, that it made that forecast before the Biden administration announced those  restrictions on sales to China. Management has said the ban could impact some $400 million of revenue in its fiscal Q3 -- leading to another 7% revenue decline, according to guidance.

In fact, Northland Capital analyst Gus Richard on Monday downgraded Nvidia competitor Advanced Micro Devices (AMD 0.52%) from buy to neutral and cut his price target on the company from $80 to $60, based on his view that chip sales to China could be slow to recover. That downgrade could also be affecting Nvidia's stock.

On the bright side, Nvidia is two weeks away from releasing its new Lovelace 4000 Series graphics cards on the market -- the latest generation in its RTX line. The new chips have begun appearing on online retailers' websites already, and in the U.S., they're being listed at close to the suggested retail price Nvidia set when it unveiled them this summer.

The impending release of the new RTX graphics cards could in part explain why sales of the older 3000 series chips were weak this summer, but it's hard to be sure. Consumers' disposable incomes are being crimped by high inflation, and the PC market is experiencing its worst annual decline since the 1990s as the pandemic-fueled boom in personal computer sales has ground to a halt.

Some worrying inflation data also came out Monday in the Eurozone. Energy and food prices continued to spike, and overall inflation accelerated to 10.7% year over year in October, which doesn't bode well for Nvidia's sales in Europe. That's especially true as Nvidia's RTX chips are being listed at higher prices there right now (though part of the price difference is attributable to value-added taxes in the region).

Now what

Nvidia got a boost last week as several large cloud services companies and other big tech players announced plans for capital expenditure increases. That should lead to higher sales of Nvidia's data center chips. However, it looks as though 2023 could be a challenging year for Nvidia's graphics card business, as there aren't any signs of impending spending recoveries in the PC, gaming, or crypto mining niches.

But with Nvidia shares down 53% on the year, one key question is: How much negativity is already priced into the stock? The market is forward-looking, so Nvidia's stock could fare better in 2023 even if graphics revenue and overall earnings decline. However, investors should probably steel themselves for additional disappointing earnings reports in 2023.

Consumer sales probably won't meaningfully turn around until central banks get inflation back under control, and it's hard to predict when that will happen. Investors will get more insights on that front Wednesday when the Federal Reserve holds its November meeting, at which it's expected to hike the benchmark federal funds rate by another 0.75 percentage points (75 basis points).