Nintendo's stock drops 10% in Japanese trading on weak NVIDIA console chip guidance

Nintendo shareholders are feeling some collateral damage after NVIDIA's stock tanked in after-hours trading.

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Shares of Nintendo are getting hammered in Japanese trading on the report from NVIDIA that demand for its Tegra chips would be weak in the upcoming quarter. Shares of Nintendo traded down 10% as Japanese traders digested the bad news from NVIDIA.

NIntendo's stock (7974/NTDOY) has had a tough 2018 after hitting a multi-year high on the back of strong earnings in 2017. It has been a very bumpy rainbow road for the Big N as the first party lineup has not been great, but many investors are hopeful for the holiday releases of Super Smash Bros. Ultimate and Pokemon Let's Go Pikachu and Eevee. Switch had experienced slower sales this year, but the company reaffirmed their sales guidance as recently as last month. To hit their full year target of 20 million Switch units, Nintendo has to sell nearly 15 million Switches by the end of March 2019. 

Tegra is at the heart of Nintendo Switch.
Tegra is at the heart of Nintendo Switch.

Today's news from NVIDIA is a potential blow to the bull case for Nintendo. NVIDIA's CFO Colette Kress said that NVIDIA expected "minimal sales" of Tegra SoCs in the quarter, blaming seasonality. Tegra revenue came in at $407 million during the most recent quarter. That amounted to a year-over year decline of 3%. Nintendo Switch represents the majority of Tegra sales these days, and many investors are reacting to this news negatively. NVIDIA's stock (NVDA) was down over $30 in after-hours trading when their total revenue guidance came in well below Wall Street's estimates.

This kind of kneejerk reaction could lead to a capitulative moment in trading of Nintendo shares over the next few days. Nintendo has a great lineup going into the end of the year with Black Friday and bundles. It remains to be seen if this selloff in Nintendo will abate and investors can begin to look forward to 2019 and the company's long-term growth plans. Nintendo is still rated "Super Mega Buy" in our Game Trader Video Game and Tech Stock Ratings. 


Full Disclosure: At the time of this article, Asif A. Khan, his family members, and his company Virtue LLC had the following positions:

Long Nintendo via NTDOY shares

Long NVIDIA via NVDA shares

CEO

Asif Khan is the CEO and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.

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