NVIDIA dragged technology heavyweights lower and sent stocks in Asia down on Thursday (Aug 29). This came after the chip maker’s earnings disappointed investors who had been hoping they would fuel fresh gains in Wall Street’s most valuable companies.
Nasdaq futures initially dropped about 1 per cent following Nvidia’s quarterly earnings report on Wednesday, suggesting traders expected tech stocks to lose ground.
Nvidia dropped almost 7 per cent and lost US$200 billion in stock market value after it forecast third-quarter gross margins that could miss market estimates and revenue that was largely in line. A handful of other AI-related companies shed around US$100 billion in combined value.
Shares of Broadcom and Advanced Micro Devices were each down about 2 per cent. Microsoft and Amazon each dipped almost 1 per cent.
Weakness in tech stocks continued into Asian trade on Thursday. Nvidia’s chip contractor TSMC slid 2 per cent. Declines in other tech names weighed on shares in Tokyo and Seoul, dragging Korea’s Kospi to a two-week low.
Nvidia’s Frankfurt-listed shares slightly pared back the after-hours move, falling 5 per cent. Even if Wednesday’s late-day dip extends into Thursday, it would be well short of the 11 per cent price swing the options market had priced for the shares, data from options analytics firm Orats showed.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Surging demand for its AI chips helped Nvidia crush consensus analyst estimates for several quarters, a trend that led investors to expect the company to exceed forecasts by higher and higher margins.
Nvidia’s soft forecasts overshadowed a beat on second-quarter revenue and adjusted earnings, as well as the unveiling of a US$50 billion share buyback.
“They beat but this was just one of those situations where expectations were so high. I don’t know that they could have had a good enough number for people to be happy,” said JJ Kinahan, chief executive officer of IG North America and president of online broker Tastytrade.
The lacklustre response to Nvidia’s earnings report could help set the tone for market sentiment heading into what is historically a volatile time of the year.
The S&P 500 has fallen in September by an average of 0.8 per cent since World War Two, the worst performance of any month, CFRA data showed.
Investors are also watching next week’s US employment report for signs on whether the labour market weakness that roiled stocks in early August has dissipated.
Optimism about AI technology, in part due to Nvidia’s explosive growth, has fuelled gains on Wall Street over the past year.
However, confidence in that rally has wavered in recent weeks following an earnings season that saw investors punish shares of tech companies whose results failed to justify rich valuations.
Investors have also become concerned about increases in already hefty spending by Microsoft, Alphabet and other major players in the race to dominate emerging AI technology. Microsoft and Alphabet’s stocks remain down since their reports last month.
Nvidia forecast revenue of US$32.5 billion, plus or minus 2 per cent, for its fiscal third quarter, compared with analysts’ average estimate of US$31.8 billion, LSEG data showed. That revenue forecast implies 80 per cent growth from the year-ago quarter.
The Santa Clara, California-based company expects adjusted gross margin of 75 per cent, plus or minus 50 basis points, in the third quarter. Analysts on average forecast gross margin to be 75.5 per cent, showed LSEG data.
Nvidia’s stock dropped 2.1 per cent in Wednesday’s session, ahead of its report. It remains up about 150 per cent so far in 2024, making it the biggest winner in Wall Street’s AI rally.
Nvidia’s stock was valued at 36 times earnings ahead of its quarterly report, inexpensive compared to its average of 41 over the past five years. The S&P 500 is trading at 21 times expected earnings, compared to a five-year average of 18. REUTERS
