By Noel Randewich and Saqib Iqbal Ahmed
(Reuters) – AI-related semiconductor shares fell on Thursday after Nvidia Inc's earnings outlook disappointed investors who had hoped it would spur new profits for Wall Street's best-performing company this year.
Nvidia (NASDAQ:) fell 4.5% in premarket trading, eroding about $150 billion in market value, after the company forecast third-quarter gross profit and revenue roughly in line with expectations.
Other semiconductor companies including Broadcom (NASDAQ:), Advanced Micro Devices (NASDAQ:), Arm and Micron (NASDAQ:) all fell between 1.6% and 2%. U.S.-listed shares of TSMC, Nvidia's chip manufacturing partner, also fell 2%.
TSMC's shares also ended lower on the Taiwan Stock Exchange. Asian tech stocks followed Nvidia's lead, while South Korea's stock index fell to its lowest in two weeks. () ()
So far, Nvidia's shares have fallen well below the 11% move the options market has priced for the stock, according to data from options analytics firm ORATS.
Surging demand for AI chips has helped Nvidia beat analyst expectations for several quarters, leading investors to expect the company to beat expectations with higher profit margins.
Nvidia's weak outlook overshadowed better-than-expected second-quarter revenue and adjusted profit and the company's announcement of a $50 billion share buyback.
“They won, but this is just one of those situations where expectations were high. I'm not sure they delivered numbers that people were happy with,” said JJ Kinahan, CEO of IG North America and president of online broker Tastytrade.
The muted reaction to Nvidia's earnings report could help set the tone for market sentiment heading into a historically volatile period, with the stock down an average of 0.8% in September, its worst monthly performance since World War II, according to CFRA data.
Investors are also watching next week's U.S. employment report for signs that the labor market weakness that rocked stocks in early August has subsided.
Optimism about AI technology, fueled in part by Nvidia's explosive growth, has driven stock prices on Wall Street over the past year.
But confidence in stock rallies has been shaken in recent weeks after earnings season saw investors harshly criticize tech stocks that failed to live up to their lofty valuations.
Investors are also growing concerned that big names like Microsoft (NASDAQ:) and Alphabet (NASDAQ:) are already investing heavily in the race to dominate emerging AI technologies. Shares of Microsoft and Alphabet have remained depressed since reporting earnings last month.
Nvidia expects third-quarter revenue of $32.5 billion, plus or minus 2%, compared with the average analyst estimate of $31.8 billion, according to LSEG data, which would represent an 80% increase from the same period last year.
The Santa Clara, California-based company now expects adjusted gross margin to be 75%, up +/- 50 basis points, for the third quarter. Analysts on average expect gross margin to be 75.5%, according to LSEG data.
Nvidia shares fell 2.1% in trading Wednesday before the earnings report. The company is up about 150% so far in 2024, making it the biggest winner in Wall Street's AI stock rally.
Nvidia's shares were valued at 36 times forward earnings prior to the quarterly earnings release, a discount to its five-year average of 41. The S&P 500 is trading at 21 times forward earnings, a discount to its five-year average of 18.
