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MarketWatch First Take: No tech sector appears safe from the spring swoon

Nvidia Corp., Nutanix Inc. and Snowflake Inc. all gave earnings forecasts that were below analysts’ expectations on Wednesday, the latest in a batch of tech companies to give warnings about the changing macroeconomic conditions.

These lowered forecasts are now coming in across most of the tech sector, from social-media company Snap Inc.
SNAP,
+10.71%

; chip maker Nvidia
NVDA,
+5.08%

; two cloud-computing companies, Nutanix
NTNX,
+2.24%

and Snowflake Inc.
SNOW,
+2.42%

; and networking giant Cisco Systems Inc.
CSCO,
+0.53%
.
A few of them have cited the lockdowns in China that started in late March, which are affecting the global supply chain, but Snap and Snowflake cited overall macroeconomic concerns.

What most these companies have in common is that their fiscal quarters ended one month later than the standard-calendar first quarter, so these earnings reports are for the quarter that ended on April 30 or May 1, giving investors a month of new data. Snap made its comments on how the economy had “deteriorated further and faster” at a JP Morgan conference and in a regulatory filing on Monday, fueling a ripple effect in a jittery market, and Snowflake said Wednesday that it believes some of its customers’ consumption patterns would be adversely affected by “macroeconomic headwinds.”

On Wednesday, chip maker Nvidia said that it expects its gaming business, which was up 31% on a year-over-year basis last quarter, to be down sequentially in the teens in the current fiscal second quarter.

“It really is about the COVID shutdowns in China,” Nvidia Chief Financial Officer Collette Kress told MarketWatch. ”It’s so much more challenging. The only thing they are buying is food, that is the only thing they are able to buy.”

She also said the loss of business from Russia will hurt Nvidia’s revenue by about $100 million in its data-center business, and the combined loss of revenue from Russia and China in gaming will be another $400 million, for a total hit of $500 million in its second quarter.

Kress said that the company was slowing down its hiring, after hiring several thousand people last year, to help prepare for any slowing economy, but she added that the company’s fundamentals “are still strong,” and noted Nvidia’s data-center business surged 80% in the quarter. When asked if she felt the economy is heading into a recession, she said that is a tough thing to see.

“Would I have thought we would be in this situation that the entire world is facing just three months ago?” she said. ”We have the Ukraine war, and the newest lockdowns in China, those are not things that just effect those two regions. We have to watch those things carefully.”

At least one analyst is looking for the positives, and the fact that some tech stocks are cheap right now.

“While the chip sector and supply-chain malaise in China (zero-COVUD policy) remains the elephant in the room, the Street right now is laser-focused on the demand picture for consumer and enterprises, with any hint of weakness (SNAP, retailers) taking stocks down a leg lower,” said Dan Ives, a Wedbush Securities analyst, in a note late Wednesday. “Our view in a nutshell is that tech stocks have overcorrected and especially cloud/cyber names are way oversold at current levels given our recent field checks.”

Amid the battered overall market, shares of most of these companies fell in after-hours trading Wednesday, with Nutanix diving over 30%, Nvidia falling nearly 7% and Snowflake tumbling almost 14%. Tech investors are getting warnings signs that the calendar second quarter is probably not going to be as good as previously expected for many companies, across multiple sectors, and they are not waiting around to see which are hit the hardest.

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