Chipmakers Slide as Nvidia's Outlook Underlines Data Center Growth Fears

Ryan Vlastelica (Bloomberg) -- Semiconductor stocks fell on Monday after Nvidia Corp. cut its fourth-quarter revenue outlook, citing deteriorating macroeconomic conditions, particularly in China, along with weakness in its gaming and data center divisions.

The stock sank as much as 18 percent, dropping on heavy volume, though it last traded down 13 percent.

Nvidia’s lowered forecast dashed recent optimism that the weakness in chipmakers, which have struggled with weak demand and high inventories, may be close to an end.

“While we view the gaming issues as unsurprising, we think the incremental softness on gross margins suggests a continued pause in Data Center,” wrote Mitch Steves, an analyst at RBC Capital Markets who has an outperform rating on the stock. “The next ~3-4 months will remain challenging until we see a return to growth in 2H19 for both gaming and Data Center.”

Separately, KeyBanc Capital Markets wrote that it anticipates the “softness” to extend into the company’s fiscal second quarter.

The sector fell broadly on Nvidia’s news, with the Philadelphia Semiconductor Index dropping as much as 3.9 percent before paring that loss to 1.6 percent.

Advanced Micro Devices lost 5.8 percent while Micron Technology was off 1.2 percent. Applied Materials was down 1.2 percent while Texas Instruments slid 0.8 percent.

Intel Corp., which reported weaker-than-expected results last week, fell 1 percent.

Bucking the day’s trend was Entegris Inc., which rose 6 percent after it agreed to buy Versum Materials Inc. in a $3.8 billion deal.