Nvidia’s forecast dampens enthusiasm for AI in other tech stocks
Shares of Nvidia and other tech giants fell Wednesday night, a discouraging sign for investors who were counting on a strong outlook from the biggest vendor of AI chips to fuel fresh gains for Wall Street’s most valuable companies.
Nasdaq futures fell about 1 percent after Nvidia’s quarterly results, suggesting traders expect tech stocks to lose ground on Thursday.
Nvidia fell nearly seven percent and lost $200 billion (roughly Rs. 16,77,898 crore) in market value after it forecast that third-quarter gross margins could miss market estimates and that revenue was broadly in line. A handful of other AI-related companies lost about $100 billion (roughly Rs. 8,38,948 crore) in combined value.
Shares of Broadcom and Advanced Micro Devices each fell about 2 percent. Microsoft and Amazon each fell nearly 1 percent.
If Nvidia shares’ late-day decline on Wednesday continues into Thursday, it will be significantly smaller than the 11 percent swing the options market had priced in for the stock, data from options analysis firm ORATS showed.
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 soft guidance overshadowed a second-quarter revenue and adjusted profit beat, as well as the announcement of a $50 billion (approximately Rs 4,19,474 crore) 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 percent 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 (roughly Rs. 2,72,658 crore), plus or minus two percent, for the fiscal third quarter, compared with analysts’ average estimate of $31.8 billion (roughly Rs. 2,66,785 crore), according to LSEG data. That revenue forecast implies growth of 80 percent from the year-ago quarter.
The Santa Clara, Calif.-based company expects an adjusted gross margin of 75 percent, plus or minus 50 basis points, in the third quarter. Analysts on average predict a gross margin of 75.5 percent, according to LSEG data.
Shares of Nvidia fell 2.1 percent in Wednesday’s session ahead of the report. It remains up about 150 percent 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.
© Thomson Reuters 2024
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
