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MarketWatch First Take

May 28, 2022, 1:12 p.m. EDT

No tech sector appears safe from the spring swoon

By Therese Poletti

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 across sectors to give warnings about changing macroeconomic conditions in the spring.

Lowered forecasts have struck across tech sectors, from social-media company Snap Inc. (NYS:SNAP) to chip maker Nvidia (NAS:NVDA) ; from cloud-software companies like Nutanix (NAS:NTNX) and Snowflake Inc. (NYS:SNOW) to networking giant Cisco Systems Inc. (NAS:CSCO) . After mostly positive earnings and forecasts earlier in the season, the recent wave of bad news updates with data from April — companies like Cisco and Nvidia have fiscal quarters that ended at the end of April — suggests the spring quarter is shaping up to be a nightmare across tech.

A few executives have cited the lockdowns in China that started in late March and are affecting the global supply chain, but Snap and Snowflake cited larger macroeconomic concerns. Snap CEO Evan Spiegel made 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 executives said Wednesday that they believes some customers’ consumption patterns would be adversely affected by “macroeconomic headwinds.”

More from Therese: Snap’s warning of a weaker outlook sends ripples through tech stocks

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, as crypto mining dries up.

“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 hiring, after bringing on 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, Kress 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.”

Earlier from Therese: Cisco blames China lockdowns for its forecast cut, but there could be deeper problems

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 at the open Thursday, with Nutanix opening down more than 35% , Nvidia falling more than 5% and Snowflake tumbling nearly 12% . They join a slew of declining tech stocks in recent weeks, but with ominous new signs of what is to come.

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. While there will be some long-term bargains in the chaos, this spring swoon is making an already volatile market even scarier.

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