Sector Snap: Chip stocks fall on Nvidia view cut

In midday trading, Nvidia shares plunged $5.42, or 30.1 percent, to $12.61 at more than triple their average daily volume. The stock earlier traded as low as $12.40, its lowest price in nearly 2 years.

The decline began after the market closed Wednesday, when Nvidia cut its revenue projection to a range of $875 million to $950 million, below the $1.1 billion forecast by analysts polled by Thomson Financial. Nvidia cited weakness in its end markets, price reductions, and the delay of a new product.

Kaufman Brothers analyst Suji De Silva--one of at least four analysts to downgrade Nvidia on the announcement--noted that the company's new sales guidance implies a sequential decline of 18 percent to 24 percent, compared with a previous forecast for a 5 percent drop.

Lowering his rating to "Hold" from "Buy," De Silva cited "production issues" in newly introduced Nvidia chips for notebooks.

"We think these production issues will dampen notebook GPU/chipset shipments in the heavily back-end loaded July quarter," he wrote in a note to investors.

Citi analyst Glen Yeung was more concerned with Nvidia's pricing adjustments, which were made in response to more aggressive pricing by competitors, most notably Advanced Micro Devices Inc. He called the pricing "the main culprit" behind the guidance reduction, which he called "worse than our fears."

Yeung kept a "Hold" rating but reduced his share price target to $19 from $25.

Elsewhere, JPMorgan analyst Shawn Webster downgraded Nvidia to "Neutral" from "Overweight," citing "overwhelming evidence of broken execution."

Nvidia's guidance cut led to a broader decline in chip stocks, notably Nvidia supplier Taiwan Semiconductor Manufacturing Co. The company's American Depositary Shares slipped 38 cents, or 3.6 percent, to $10.22.