China’s weakening economy has claimed another corporate victim: Chipmaker Nvidia slashed its sales outlook for the fourth quarter, because of “deteriorating macroeconomic conditions, particularly in China.”
Nvidia expected sales of about $2.7 billion in the quarter but said Monday that it now predicts revenue will come in around $2.2 billion. The company also said its gross profit margin will be much lower than expected.
Shares of Nvidia (NVDA) plunged more than 16% in early trading on the news before rebounding a bit. Nvidia (NVDA) rival AMD (AMD) also fell nearly 5%.
The broader market – including tech stocks – already fell sharply Monday morning after Dow component Caterpillar (CAT) reported earnings that missed forecasts by a wide margin. Caterpillar (CAT) issued guidance that was below what Wall Street was expecting.
Nvidia, which makes high-end graphics chips used for PC video games, self-driving cars and supercomputers, said demand for games in China was hurt by broader economic weakness.
The company added that sales of processors using its new Turing technology were lower than expected as consumers seem to be waiting for prices to drop. Nvidia will release its official results on February 14.
Nvidia had been one of the hottest stocks in the S&P 500 in 2016 and 2017. But shares fell 30% last year because of growing worries about China’s economy following a trade dispute with the United States.
Nvidia was also hit hard by the epic collapse in bitcoin and other cryptocurrencies’ prices. Nvidia’s powerful graphics chips have been used to mine bitcoin, solving complex mathematical problems needed to help produce cryptocurrencies.
That market has dried up in the past year and Nvidia CEO Jensen Huang said during an earnings call in November that “the crypto hangover lasted longer than we expected.”