Since October, Nvidia (NASDAQ:NVDA) stock has gotten clobbered. True, part of this was due to the harsh correction in the semiconductor space. Yet the fall in NVDA stock has also been the result of deteriorating fundaments, as seen in the third-quarter earnings report. Nvidia’s profits were $1.84 per share, which missed the analysts’ consensus of $1.87 per share. As for the top line, the revenues came in at $3.18 billion. But Wall Street was looking for $3.24 billion.

The problem? Well, it was the steep drop in cryptocurrency demand, which relies heavily on super-quick processors. Nvidia has been left with a pile of inventory of chips that needs to be worked off.

But on the earnings call, management implied that the situation looked contained and temporary. Here’s what CEO Jen-Hsun Huang said:

“1060 is the #1 selling graphics card in the world, and we decided not to sell anymore into the channel for the upcoming quarter to get the channel an opportunity to sell through the inventory it has. And so we’ll keep our eyes on it, but our expectation is that inventory levels will come back to normal by the end of the quarter.”

Unfortunately, the optimism was premature. Today the company preannounced its fourth-quarter results — and they were awful. On the news, NVDA stock is off 13.5% to $138.48 in early trading. Other semi stocks are also down in sympathy, such as Advanced Micro Devices (NASDAQ:AMD), Intel (NASDAQ:INTC) and Micron (NASDAQ:MU).

The latest projections from NVDA show that revenues for Q4 will come in at $2.2 billion, which is roughly $500 million off of the mid-point of the prior guidance. This represents a steep deceleration in the business.

In the press release, NVDA notes that the falloff of demand from China has been significant, especially with gaming GPUs (Graphics Processing Units). Even though the company’s new Turing technology is at the cutting-edge — such as with real-time ray tracing and Artificial Intelligence (AI) capabilities — there appearrs to be few use-cases right now. It also appears that customers are waiting for lower prices.

This is really a double-wammy. NVDA not only gets a majority of its revenues from gaming but about 20% comes from China.

But the NVDA press release offered some more bad news: the data center business is coming under pressure. Various deals did not close in the quarter because of a “cautious approach” from customers.

Bottom Line on Nvidia Stock

When looking at the long-term, NVDA stock does have tremendous potential. The fact is that GPUs have proven quite effective for the AI revolution. And, of course, the market opportunity is massive. According to IDC, the spending on cognitive and AI systems is expected to go from $24 billion in 2018 to $77.6 billion by 2022.

This is a sizzling 37.3% compound annual growth rate. The main reason for this is that AI is likely to have applications across many industries. It also helps that mega tech operators like Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), Facebook (NASDAQ:FB) and Alibaba (NYSE:BABA) consider this technology to be strategic.

Here’s now Huang put it in today’s shareholder letter:

“Retail, healthcare, financial, and consumer internet services companies have enormous amounts of business data. They use machine learning to create predictive AI models from data. The compute time to process data and train their AI models can take days to weeks. NVIDIA can accelerate machine learning as we have done with deep learning.”

He’s spot on. But then again, the short term may still be quite volatile for NVDA stock. It seems like a pretty good bet that we’ll see many downgrades. It’s also far form clear how the macroeconomic situation will play out in China. The downturn could perhaps be prolonged.

So even though NVDA stock is much cheaper now, it’s probably best to wait for things to stabilizes before making a purchase.

Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.