Nvidia dragged down AI-linked chip stocks on Thursday after its forecasts disappointed investors, who were hoping for a boost in the companies’ performance. The company’s shares dropped 4.5% in premarket trading, on track to lose about $150 billion in stock market value.
Nvidia’s forecast for third-quarter gross margins and revenue fell short of market estimates. Shares of other chip firms, including Broadcom, Advanced Micro Devices, Arm, and Micron, were down between 1.6% and 2%. U.S.-listed shares of TSMC, Nvidia’s chip manufacturing partner, also fell by 2%. TSMC’s shares on the Taiwan bourse also closed lower, as Asian tech stocks tracked the weakness in Nvidia. The decline in Nvidia was less than the 11% price swing that the options market had anticipated for the shares.
The company’s soft forecasts overshadowed a beat on second-quarter revenue and adjusted earnings as well as the announcement of a $50 billion share buyback. The lackluster response to Nvidia’s earnings report could influence market sentiment heading into a historically volatile time of the year. The S&P 500 has historically fallen in September, posting the worst performance of any month since World War Two, according to CFRA data.
Investors are also watching next week’s U.S. employment report for signs of improvement in the labor market. Nvidia forecasted revenue of $32.5 billion, plus or minus 2%, for its fiscal third quarter, compared with analysts’ average estimate of $31.8 billion. The company expects an adjusted gross margin of 75%, plus or minus 50 basis points, in the third quarter, which fell short of analysts’ average forecast of 75.5%. Nvidia’s stock remains up about 150% so far in 2024, making it the biggest winner in Wall Street’s AI rally.