By Scott Moritz

Tech investors were rattled after Nvidia (NVDA) set off a big alarm.

The graphic chip supplier to the PC industry on Wednesday slashed its second-quarter sales forecast to about $912 million, 17% below analysts’ estimates. It also said it would take a $150 million to $200 million charge to cover replacement costs of defective chips.

The warning sent Nvidia shares down 31% Thursday and added more pressure to the Nasdaq, which fell 2%, and is now down more than 9% in the past month.

But some analysts think investors overreacted by sending tech stocks down on Nvidia’s warning. The company’s problems appear to be specific to Nvidia.

“While the company attributed a portion of the miss to global end market weakness, our checks indicate component demand from other chip companies touching the PC end market is stable,” JPMorgan analyst Shawn Webster wrote in a report Wednesday.

No.2 rival AMD (AMD), which fell 1% Thursday, likely saw solid demand for graphics chips and probably took some of Nvidia’ business in the quarter, analysts says.

Webster downgraded the stock to neutral from buy after concluding that many of Nvidia’s problems are company-specific. He says Nvidia started the quarter with a pile of excess graphics chips. This surplus was compounded by increased competition as rivals took market share and capitalized on a shift among computer makers from separate graphics cards to integrated-graphics chips. Nvidia, which commands 80% of the graphics processor market, mostly sells separate graphics cards.

Nvidia spread the blame for the sharp sales decline on a number of factors, including a replacement of bad chips, a soft economy, product delays and price competition. “There’s a bit of ‘and-the-kitchen-sink’ to this,” says one Wall Street analyst.

“We knew that the July quarter was going to be choppy, but we didn’t expect this magnitude of bad news so early,” Cowen analyst Dan Berenbaum wrote in a note Thursday, referring to the four weeks of business yet to book in Nvidia’s second quarter ending July 31.

Berenbaum says the stock is trading like the company is at death’s door, but he argues that “the near-term difficulties do not mean that Nvidia is in secular decline.”

By Yi-Wyn Yen

Its $1.9 billion bid to buy rival Take-Two (TTWO) having been rejected by management, video game giant Electronic Arts took its case directly to the shareholders Thursday morning.

At stake is the future of Grand Theft Auto, a relentlessly violent action-adventure that has grown into one of the most valuable video game franchises in the business. Earlier this week, Take-Two raised its sales estimates for the current quarter to $400-$500 million, based on pre-orders for the next version of the game, Grand Theft Auto IV, due out April 29.

With the new release just weeks away, EA (ERTS) wants to close a deal quickly. The company has been on a buying spree of late to replace its own aging franchises — such as the Madden Football series. It is offering Take-Two shareholders the same $26 a share that the company’s management had already turned down. Its offer is set to expire on April 11, the day after the Take-Two’s annual shareholder’s meeting — putting maximum pressure on the company’s leadership.

Take-Two executives have repeatedly said that $26 a share is too low, but their shareholders may disagree. Take-Two’s two biggest, Oppenheimer and Fidelity, have sold a significant portion of their shares for less, it was revealed earlier this week. Oppenheimer has cut 50% of its holdings to 8.8 million shares and now has an 11.5% stake in the company. Fidelity’s stake is now down to 2.75% from 14.7%.

“EA may have offered more if Take-Two had come to the negotiating table,” said Colin Sebastian, a gaming analyst with Lazard Capital Markets. “But there was no bidding war going on. EA thinks shareholders may be more favorable to the deal.”

“This is a great opportunity for Take-Two shareholders,” said EA chief executive John Riccitiello in a statement. “We believe Take-Two investors will see our tender offer as the best way to maximize the value of their investment.”

Shortly after, Take-Two urged shareholders to “take no action.” Take-Two’s board said it would review the offer and instruct shareholders of its decision within 10 days.