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Price-Cut Rumors Chase Nvidia

Nvidia (NVDA - Get Report) fell nearly 6% on Tuesday amid concerns about a rumored price cut.

Rumors circulating around the market had the graphics chipmaker cutting prices on its lower-end and mainstream processors as much as 16%. The broader concern, apparently, was that those price cuts would force Nvidia to miss quarterly earnings estimates.

Nvidia is expected to release a new high-end chip next week, an event that typically is paired with price cuts, noted Tera Capital portfolio manager Duncan Stewart. But Stewart also linked the price-cut rumors to Nvidia-rival ATI Technologies (ATYT) revenue and earnings warning last week.

"What I'm hearing is that ATI's inventory levels are too high, and that creates pressure on pricing," said Stewart, who is long ATI but has no position in Nvidia. "It wouldn't surprise me if [ATI were] cutting prices, and it makes sense that Nvidia would have to respond."

Nvidia spokeswoman Calisa Cole declined to confirm the rumor. However, she did say that "price cuts are typical and happen consistently throughout the year."

Regardless of whether the rumor is true or not, it apparently prodded investors to sell the stock. Nvidia shares closed regular trading on Tuesday off $1.69, or 5.9%, to $26.91.

Nvidia's stock price has jumped about 34% in the last two months amid a general rise in chip shares. The company's decline Tuesday comes as the sector as a whole has started to retreat, noted Tim Biggam, chief options strategist at Man Securities.

"People are harvesting some gains here," Biggam said.

Nvidia stock has recovered along with the company's fortunes. In recent quarters, the company has been taking market share from ATI while posting strong quarterly results.

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