5 ETFs Hit By Nvidia's Revenue Guidance Cut

NVIDIA (NVDA - Free Report) dampened investors’ mood after it lowered its fourth-quarter fiscal 2019 revenue guidance amid deteriorating macro fundamentals, especially in China. The stock tumbled nearly 14% in Monday’s trading session. 

NVIDIA now expects revenues to come in $2.20 billion (+/-2%), down from previous guidance of $2.70 billion (+/-2%). This indicates 24% year-over-year revenue decline. Weak demand for its gaming chips in China and lower-than-expected datacenter sales have taken a toll on the quarter’s revenue. The company also reduced its gross margin guidance by 650 basis points (bps) from 62.5% to 56%.

Market Impact

The news led to a sell-off in the broader sector, pushing many chip stocks lower. In particular, Advanced Micro Devices (AMD - Free Report) dropped 8%, Mellanox Technologies fell more than 3% and Micron Technologies (MU - Free Report) slid 2%. The PHLX Semiconductor Index fell more than 2% on the day.

NVIDIA’s cut in revenue guidance signaled more challenges for the microchip industry and added to concerns about the China slowdown impacting the technology sector. Last week, Intel (INTC - Free Report) warned about slowing global data center growth amid increasing macroeconomic uncertainty while Apple (AAPL - Free Report) and many of its suppliers cautioned that smart device demand in emerging markets is slowing down.

Depressed by NVIDIA’s revenue warning, analysts started to cut the target price for the stock. The stock currently has a Zacks Rank #3 (Hold) and solid Growth Score of B. It belongs to a bottom-ranked Zacks Industry (bottom 4%).

ETFs in Focus

We have highlighted ETFs with higher allocation to this graphics chipmaker that declined following the company’s weak outlook:

iShares PHLX Semiconductor ETF (SOXX - Free Report) – Down 2%

This ETF offers exposure to 30 U.S. companies that design, manufacture and distribute semiconductors by tracking the PHLX SOX Semiconductor Sector Index. Of these, NVDA takes the third spot at 7.7% allocation. The fund has amassed $1.1 billion in its asset base and charges a fee of 47 bps a year. It trades in solid volume of 895,000 shares and has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

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