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5 ETFs Hit By NVIDIA's Revenue Guidance Cut

Sweta Killa

NVIDIA NVDA dampened investors’ mood after it lowered its fourth-quarter fiscal 2019 revenue guidance amid deteriorating macro fundamentals, especially in China. The stock tumbled nearly 14% in Monday’s trading session. 

NVIDIA now expects revenues to come in $2.20 billion (+/-2%), down from previous guidance of $2.70 billion (+/-2%). This indicates 24% year-over -year revenue decline. Weak demand for its gaming chips in China and lower-than-expected datacenter sales have taken a toll on the quarter’s revenue. The company also reduced its gross margin guidance by 650 basis points (bps) from 62.5% to 56% (see: all the Technology ETFs here).

Market Impact

The news led to a sell-off in the broader sector, pushing many chip stocks lower. In particular, Advanced Micro Devices AMD dropped 8%, Mellanox Technologies fell more than 3% and Micron Technologies MU slid 2%. The PHLX Semiconductor Index fell more than 2% on the day.

NVIDIA’s cut in revenue guidance signaled more challenges for the microchip industry and added to concerns about the China slowdown impacting the technology sector. Last week, Intel INTC warned about slowing global data center growth amid increasing macroeconomic uncertainty while Apple AAPL and many of its suppliers cautioned that smart device demand in emerging markets is slowing down (read: Will Intel's Weak Guidance Disrupt Semiconductor ETFs' Rally?).

Depressed by NVIDIA’s revenue warning, analysts started to cut the target price for the stock. The stock currently has a Zacks Rank #3 (Hold) and solid Growth Score of B. It belongs to a bottom-ranked Zacks Industry (bottom 4%).

ETFs in Focus

We have highlighted ETFs with higher allocation to this graphics chipmaker that declined following the company’s weak outlook:

iShares PHLX Semiconductor ETF SOXX – Down 2%

This ETF offers exposure to 30 U.S. companies that design, manufacture and distribute semiconductors by tracking the PHLX SOX Semiconductor Sector Index. Of these, NVDA takes the third spot at 7.7% allocation. The fund has amassed $1.1 billion in its asset base and charges a fee of 47 bps a year. It trades in solid volume of 895,000 shares and has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: Chip Stocks See Big Two-Day Rally After 2015: ETFs in Focus).

VanEck Vectors Video Gaming and eSports ETF ESPO – Down 2.5%

This fund offers exposure to global companies involved in video game development, e-sports, and related hardware and software by tracking the MVIS Global Video Gaming and eSports Index. Holding 25 stocks in its basket, NVIDIA takes the second spot with 7.3% share. American firms account for one-third of the portfolio while Japan, China and South Korea round off the next three with double-digit allocation. The fund has gathered $8.9 million in its asset base while trading in average daily volume of 6,000 shares. It charges 55 bps in annual fees from investors (read: Capture the eSports Craze with this ETF).

ARK Industrial Innovation ETF ARKQ – Down 1.8%

This is an actively managed ETF seeking long-term capital appreciation by investing in companies that benefit from the development of new products or services, technological improvements and advancements in scientific research related to energy, automation and manufacturing, materials, and transportation. This approach results in a basket of 36 stocks, with NVDA occupying the fifth spot holding 6.9% share. The product has accumulated $165.9 million in its asset base and charges 75 bps in fees per year. It sees lower volume of about 38,000 shares a day.

ARK Web x.0 ETF ARKW – Down 1.9%

This is an actively managed fund focusing on companies that are expected to benefit from the shift in technology infrastructure to the cloud, enabling mobile, new and local services. The fund holds 36 stocks in its basket, with NVIDIA occupying the second position at 6.5%. The ETF has amassed $458.2 million in its asset base and trades in a good average daily volume of around 161,000 shares. Expense ratio comes in at 0.75%

VanEck Vectors Semiconductor ETF SMH – Down 1.9%

This ETF has AUM of $971.3 million and average daily volume of about 7.1 million shares. The fund provides exposure to 25 global securities by tracking the MVIS US Listed Semiconductor 25 Index. NVIDIA occupies the fifth spot with 5.3% of the assets. While American firms dominate the fund’s holdings with 79.1% assets, Taiwan (9.7%), the Netherlands (9.2%), and Switzerland (1.9%) round off the top four in terms of country exposure. The fund charges an expense ratio of 0.35%. It has a Zacks ETF Rank #3 with a High risk outlook.

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