Nvidia tells the truth, tempering a potential rally for chip stocks

For several months, chip companies have told investors that a rebound is just around the corner. As MarketWatch warned months ago, there was little evidence to back up these claims, and Nvidia Corp admitted so much Thursday afternoon, throwing a wet blanket on a downturn for its besieged stock and shares in other chip companies.

Chip shares jumped back from a weak increase in extended trading Thursday afternoon, after Nvidia

NVDA, + 0.38%

and equipment supplier Applied Materials Inc.

AMAT, + 0.39%

reported revenue that knocks down water-tight expectations. Most of these gains were almost erased, but after Nvidia refused to repeat a previous year's forecast and admitted that a decline in the data center market, a major growth driver for the biggest names in semiconductors, is not improving and can & # 39; It is not expected to be provided.

"The outbreak of the data center around the world is likely to continue in the second quarter, and visibility remains low," said CFO Colette Kress in a conference call Thursday, adding "we are returning to Our Practice of Revenue Prospects one quarter at a time . "

Full earnings coverage: Nvidia stock management loses steam on cloudy prospects for server chips

Immediately after the statement, a 7% hourly gain for the Nvidia shares disappeared to almost nothing before we jumped back to a 2% gain when the extended session was approaching close. Rivals who had received a retrofit stop with Nvidia – especially Advanced Micro Devices Inc.

AMD, + 1.56%

and Intel Corp.

INTC, -0.20%

– also reversed course.

Nvidia joins a chorus of chip company executives who push back their predictions for a major recovery in the second half of the year while waiting for companies to "digest" previously purchased components and worry about China. Intel slashed its annual forecast last month and after Microchip Technology Corp.

-0.84% ​​

CEO Steve Sanghi called a much ballyhooed bottom for chips, he easily went back last week among continuing trade disputes between the US and China. AMD continues to be optimistic, but is just getting into the server game, so some wins are a win.

The reality is that this can be a temporary downturn ending in the time 2020 rolls around, or it could be the beginning of the end of the massive cloud data center development that has supported the technology boom, even though the mobile phone market has stagnated and sales of personal computers continue to wear. Leaders continue to rely on the first option and refuse to acknowledge that the other self exists, but at least they become more honest about how little they can reliably predict in this environment.

See also: These 15 tech stocks are backed by quarterly best sales figures

Nvidia obviously believes there is much more room to run in data centers, based on large money purchases by Mellanox Technologies Ltd.

MLNX, -1.66%

in the quarter. And it turns out it can overcome a significant drop in sales due to past over-spending – its core business seems to be recovering from a "crypto hangover" with a turnover of over $ 1 billion in the first quarter and expectations of a Nintendo Switch and gaming laptop-fueled jump on the horizon.

The chip companies had some very good years late, and Nvidia's rise has been a big part of it, but 2019 looks like a bad one. No one really knows when it comes back, but at least the leaders are more honest about it.

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