Computer chips were in high demand. Then inflation kicked in

By Julia Horowitz, CNN Business

When consumers were stuck inside during the early stages of the Covid-19 pandemic, there weren’t many places to spend money. So they turned their attention to technology, scooping up new gaming consoles, monitors and PCs that made living and working from home a bit easier.

Now, as people return to offices, gyms and restaurants and rethink their spending as inflation starts to bite, sales of gadgets are taking a hit — as are the companies making the chips that power them.

What’s happening: Nvidia, which warned earlier this month that its sales were dropping due to weaker gaming revenue, shared earnings on Wednesday. The firm posted revenue between May and July of $6.7 billion, up 3% from one year ago but down 19% from the previous quarter.

“This was a challenging quarter,” Chief Financial Officer Colette Kress told analysts. “Macroeconomic headwinds across the world drove a sudden slowdown in consumer demand.”

Gaming revenue was dinged in part due to a decline in cryptocurrency mining that relies on Nvidia’s chips. Matt Bryson, an analyst at Wedbush Securities, told me that the downturn was tied to the pullback in crypto prices, which has chilled enthusiasm in the sector, and to changes in how the digital coin ether is produced.

Revenue of data center chips reached a record last quarter, but wasn’t as high as the company would have liked given supply chain disruptions.

Looking ahead: The situation isn’t due to improve any time soon. The company said that revenue for its current quarter would come in around $5.9 billion, down 17% year-over-year, and that its gaming business would continue to retrench. Shares are off more than 3% in premarket trading on Thursday.

Nvidia isn’t the only company in the industry that’s run into trouble. Last month, Intel posted a surprise loss, pointing to the “sudden and rapid decline in economic activity.”

The firm forecast a sharp drop in PC chip sales this year as top customers tried to clear out existing inventory, a sign they’re expecting lower demand for products.

“This weakness is pervasive across the semiconductor industry for companies that sell into either the PC space … or into the handset space,” Bryson said. “It comes back down to the consumer.”

Problems are spread across markets, too. A report by analytics firm Canalys published on Thursday found that PC shipments from China fell by 16% in the second quarter, the worst decline in nine years.

On the radar: Providing chips for data centers has been a huge revenue driver in recent years, as cloud offerings from companies like Google and Amazon have taken off. But there are concerns that Big Tech firms could pull back spending on this front if other parts of their businesses run into trouble.

The fear, Bryson said, is that if companies spend less on Google ads, or Amazon customers don’t order as many items, those giants of the tech world (and the stock market) may turn more conservative.

His question: “Will the struggles of the consumer ultimately affect them?”

What Biden’s student debt relief plan means for the economy

President Joe Biden’s student loan plan is a potential game changer for Americans drowning in debt. But what will it mean for the economy at a moment when policymakers are losing sleep over high inflation?

The latest: Biden announced Wednesday that his administration will forgive $10,000 for borrowers who make less than $125,000 per year. Low-income graduates who went to college on Pell Grants will receive up to $20,000.

This debt relief will give tens of millions of borrowers some breathing room at a time when the cost of living has skyrocketed.

That said: The cancellation of student debt is being paired with a plan to lift the freeze on federal student debt payments beginning in January 2023. That means many Americans who haven’t had to pay down student loans since March 2020 will have to begin doing so, hurting their budgets.

According to economists, this policy combination means the overall impact on the economy and prices will be minimal, my CNN Business colleague Matt Egan reports.

“The end of the moratorium will weigh on growth and inflation, while the debt forgiveness will support growth and inflation,” said Moody’s Analytics chief economist Mark Zandi. “The net of these cross-currents is largely a wash.”

Moody’s estimates that the combined impact will reduce real GDP in 2023 by 0.05 percentage points, drive down unemployment by 0.02 percentage points and cut inflation by 0.03 percentage points. In other words, a drop in the bucket.

“We’re talking about a really small impact,” said Dean Baker, co-founder of the Center for Economic and Policy Research. “But for individuals this makes a big difference.”

The political fight over ESG is heating up

ESG is a wonky acronym for finance professionals. But in red states, aligning investment decisions with good environmental, social and governance practices has become a political football, putting Wall Street on the defensive.

This just in: Texas agencies could bar BlackRock, the world’s biggest asset manager, and nine European firms — including UBS and Credit Suisse — from doing business in the state after its comptroller on Wednesday found that the companies were boycotting the energy industry, breaking a new law intended to protect the fossil fuel sector.

“The environmental, social and corporate governance (ESG) movement has produced an opaque and perverse system in which some financial companies no longer make decisions in the best interest of their shareholders or their clients, but instead use their financial clout to push a social and political agenda shrouded in secrecy,” Comptroller Glenn Hegar said.

BlackRock, which manages about $20 billion for public funds in Texas, criticized the decision by officials to politicize state pension funds, which it said would impact financial returns for retirees.

It’s not just Texas. This week, Florida passed a resolution directing the state’s fund managers to ignore ESG factors when making investment decisions.

My takeaway: ESG investments have struggled this year, since many funds have a lot of exposure to tech names that have been hammered hard by the market sell-off. But when I speak with investors, many say they have no choice but to consider how companies in their portfolios are tackling issues like the climate crisis, since this could have a big impact on future returns.

Defending these decisions could become trickier should ESG become increasingly ensnared in America’s culture wars. But broadly speaking, firms are unlikely to change tack.

Up next

Abercrombie & Fitch, Coty, Dollar General and Dollar Tree report results before US markets open. Affirm, Dell and Gap follow after the close.

Also today: The second estimate of US GDP for the second quarter arrives at 8:30 a.m. ET.

Coming tomorrow: Federal Reserve Chair Jerome Powell delivers a closely-watched speech at the Jackson Hole symposium of central bankers.

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