The world’s biggest computer chip maker NVIDIA Corporation (NASDAQ:NVDA) has issued a profit warning in the lead-up to its interim results due on August 24, sparking a sell-off of its shares and other tech stocks.
NVIDIA shares tumbled 6.3% on Monday and are expected to fall another 2.9% to around US$173 on Tuesday.
Revenues for the quarter are expected to come in at US$6.7bn, making for a 17% shortfall against May guidance of US$8.1bn, the company said.
While data centre revenues are expected to post record amounts, weak gaming revenues (i.e. graphics card sales) have hit the US$444bn valued corporation.
“Our gaming product sell-through projections declined significantly as the quarter progressed,” said Jensen Huang, founder and chief executive officer of NVIDIA, adding: “As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our gaming partners to adjust channel prices and inventory.”
The drop in gaming revenues reflects broader trends in the sector; according to The Verge, video game sales are down 13% year over year, while Sony and Microsoft issued their own profit warnings in recent weeks.
NVIDIA’s margins narrow
NVIDIA’s smaller automotive segment is expected to increase 59% sequentially, but is likely to be offset by quarterly declines into the professional visualisation and original equipment manufacturing (OEM) departments.
Gross margins have been reduced from 65% to less than 44% due to excessive operating expenses.
“The significant charges incurred in the quarter reflect previous long-term purchase commitments we made during a time of severe component shortages and our current expectation of ongoing macroeconomic uncertainty,” said chief financial officer Colette Kress.
According to equities analysts at Peel Hunt, the profit warning weighed on the semiconductor and broader technology segment of the NASDAQ Composite, which fell by -1.6% and 0.9% respectively.
Some analysts cut their stock price target, with JP Morgan trimming to US$230 from US$285, and Mizuho cutting to US$250 from US$290.