By Noel Randewich and Saqib Iqbal Ahmed
(Reuters) – Shares of Nvidia and other technology giants fell on Wednesday evening, a discouraging sign for investors who had been counting on a strong forecast from the biggest seller of AI chips to fuel fresh gains at Wall Street’s most valuable companies.
Nasdaq futures fell about 1% after Nvidia’s quarterly results, suggesting traders expect tech stocks to lose ground on Thursday.
Nvidia fell nearly 7% and lost $200 billion in market value after it forecast third-quarter gross margins could miss market estimates and revenue was broadly in line. A handful of other AI-related companies lost about $100 billion in combined value.
Shares of Broadcom and Advanced Micro Devices each fell about 2%. Microsoft and Amazon each fell nearly 1%.
If Nvidia shares’ late-day decline on Wednesday continues into Thursday, it will be significantly smaller than the 11% swing the options market had priced in for the stock, according to data from options analysis firm ORATS.
Rising demand for its AI chips helped Nvidia beat analysts’ consensus estimates for multiple quarters. This trend led investors to expect the company to beat forecasts by increasingly higher margins.
Nvidia’s dovish guidance overshadowed a second-quarter revenue and adjusted profit beat, as well as the announcement of a $50 billion share buyback program.
“They won, but it was just one of those situations where the expectations were so high. I don’t know if they could have had a good enough number to make people happy,” said JJ Kinahan, CEO of IG North America and president of online broker Tastytrade.
The tepid reaction to Nvidia’s earnings report could set the tone for market sentiment heading into what has historically been a volatile time of year. The S&P 500 has fallen an average of 0.8% in September since World War II, its worst monthly performance, according to CFRA data.
Investors are also keeping an eye on next week’s U.S. jobs report to see if the labor market weakness that plagued stocks in early August has subsided.
Optimism about AI technology, thanks in part to Nvidia’s explosive growth, has fueled gains on Wall Street over the past year.
Confidence in that rally has waned in recent weeks, however, as investors punished technology stocks during an earnings season as results fell short of lofty valuations.
Investors are also concerned about the already hefty spending spree by Microsoft, Alphabet and other big players in the race to dominate emerging AI technology. Shares of Microsoft and Alphabet have continued to fall since their reports last month.
Nvidia forecast revenue of $32.5 billion, plus or minus 2%, for its fiscal third quarter, compared with analysts’ average estimate of $31.8 billion, according to LSEG data. That revenue forecast implies growth of 80% from the year-ago quarter.
The Santa Clara, Calif.-based company expects an adjusted gross margin of 75%, plus or minus 50 basis points, in the third quarter. Analysts on average predict a gross margin of 75.5%, according to LSEG data.
Shares of Nvidia fell 2.1% in Wednesday’s session ahead of the report. It remains up about 150% so far in 2024, making it the biggest winner in Wall Street’s AI rally.
Nvidia’s shares were valued at 36 times earnings ahead of the quarterly report, cheap compared with the five-year average of 41. The S&P 500 is trading at 21 times forward earnings, compared with a five-year average of 18.
(Reporting by Noel Randewich in San Francisco; additional reporting by Saqib Ahmed in New York; Editing by Ira Iosebashvili and Lisa Shumaker)
