Chip designer Nvidia Corp forecast second-quarter revenue below Wall Street estimates on Wednesday, bracing for supply chain snags and slowing demand for graphics chips used in gaming devices.
Shares of the company fell 8.8 percent in extended trading, after tanking roughly 40% this year in tandem with a wider sell-off in growth stocks over concerns of aggressive rate increases.
The forecast included an estimated reduction of about $500 million of revenue relating to Russia and the COVID-19 lockdowns in China, the company said.
Weaker graphics chips prices and lower discretionary spending amid high inflation are likely to pressure Nvidia's gaming business, according to experts.
"The pullback after hours is an overreaction to geopolitical events outside of the company's control, not a weakening demand environment," said Logan Purk, analyst at Edward Jones.
Kinngai Chan, analyst at Summit Insights Group, was more critical saying almost every tech company that missed on outlook has blamed the Russia-Ukraine conflict and China COVID lockdowns.
A rout in the cryptocurrency market also hurt demand for its GPUs, or graphics processing units, which are favoured by miners of cryptocurrency. The company's chief financial officer said in a statement Wednesday that Nvidia had a 52% year over year decline in its OEM and Other revenue category due to a drop in revenue from processors for cryptocurrency mining.
Still, demand from data centre clients remained strong as more firms shift to the cloud and incorporate artificial intelligence in their operations.
"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," said Nvidia Chief Executive Officer Jensen Huang in the company's earnings statement.
Nvidia forecast second-quarter revenue of $8.10 billion, plus or minus 2%. Analysts on average expect $8.45 billion, according to IBES data from Refinitiv.
Revenue for the first quarter ended May 1 rose 46% to a record $8.29 billion. Excluding items, the company earned $1.36 per share, beating estimates of $1.29
(Reporting by Chavi Mehta in Bengaluru and Jane Lanhee Lee in California; Editing by Devika Syamnath, Bernard Orr)