Shares of chip designer Nvidia tumbled more than 10 percent on Wednesday after the company said it expects sales of video game chips to decline in the current quarter.
The American technology company beat analysts’ expectations for sales and earnings, reporting record revenue for the first quarter of $8.29 billion, up 46 percent from a year ago and up 8 percent from the previous quarter.
However, shares of the Delaware-headquartered tech company declined on Wednesday after it forecast its sales of video game chips would drop in the current quarter, pointing to new supply-chain issues resulting from China’s COVID-19 lockdowns.
Nvidia CEO Jensen Huang said in a statement that the company was facing a “challenging macro environment” but touted its delivery of “record results in Data Center and Gaming” against the tough backdrop.
“The effectiveness of deep learning to automate intelligence is driving companies across industries to adopt NVIDIA for AI computing. Data Center has become our largest platform, even as Gaming achieved a record quarter,” Huang said.
Nvidia said its revenue in the current quarter would be approximately $500 million lower than initially expected owing to the Russia–Ukraine conflict and strict COVID-19 lockdowns in China, which, in addition to affecting logistics, were dampening consumer spending.
The company said revenue for the current quarter would be about $8.1 billion, falling shy of analyst expectations of $8.54 billion.
Nvidia stock is down over 43 percent so far this year amid a broad investor sell-off of tech stocks as investors turn to safer bets amid a volatile economic environment and high inflation.
Chief Executive Jensen Huang told Reuters, “Overall the gaming market is slowing.”
Based on the softer market demand, Nvidia has chosen to reduce what it sells in the China market, he said. Nvidia also sees “slower sell-through” in Europe.
Chief Financial Officer Colette Kress said the $500 million figure includes about $400 million lost in gaming sales in China and Russia and another $100 million lost in data center sales in Russia.
Weaker prices for graphics chips and lower discretionary spending as inflation continues to soar are likely to put pressure on Nvidia’s gaming business, experts say.
Kress said Nvidia would also slow hiring and control expenses this year.
Despite this, Nvidia’s latest earnings results show it continues to increase revenues amid strong demand for its graphics cards for laptops and chips for game consoles.
“We are gearing up for the largest wave of new products in our history with new GPU, CPU, DPU, and robotics processors ramping in the second half. Our new chips and systems will greatly advance AI, graphics, Omniverse, self-driving cars, and robotics, as well as the many industries these technologies impact,” Huang said.
