NVIDIA Corporation (NVDA) shares fell more than 10% on Monday after the company cut its fourth quarter guidance. Revenue is expected to be closer to $2.2 billion compared to a $2.7 billion consensus, and gross margins are projected to be near 56% compared to a 62.5% consensus. The company cited deteriorating macroeconomic conditions, particularly in China, for the lower expectations.
The announcement comes shortly after Intel Corporation (INTC) and Taiwan Semiconductor Manufacturing Company Limited (TSM) issued weak outlooks for the next quarter. After Intel's results, Jefferies removed NVIDIA as a Franchise Pick late last week, saying that it expects cloud companies to suffer from data center capacity issues over the next several quarters.
Despite the weakness, NVIDIA believes that it has a large and expanding addressable market in artificial intelligence and high-performance computing. CEO Jensen Guang notes that the fourth quarter was "extraordinarily, unusually turbulent" but that the foundation of the business remains strong and growth drivers remain intact over the long run.
From a technical standpoint, the stock broke down from the 50-day moving average and pivot point to nearly retest its 52-week lows made in late December. The relative strength index (RSI) moved closer to oversold levels with a reading of 42.31, but the moving average convergence divergence (MACD) could see a near-term bearish crossover. These indicators suggest that there's room for more downside ahead.
Traders should watch for some consolidation above 52-week lows of $124.46 and below the pivot point at $144.21 over the coming sessions. If the stock breaks down from its lows, there's strong trendline and S1 support at $113.75. If the stock rebounds back above the pivot point, traders could see a move to retest reaction highs just below $180.00, although that scenario may be less likely to occur.
The author holds no position in the stock(s) mentioned except through passively managed index funds.