Shares of Nvidia and other technology heavyweights fell late Wednesday, indicating a potential loss in momentum for Wall Street’s most valuable companies. Nasdaq futures dropped approximately 1% following Nvidia’s quarterly earnings report, suggesting a decline in tech stocks on Thursday. Nvidia saw a nearly 7% drop in share price and lost $200 billion in market value after forecasting third-quarter gross margins that may fall short of market estimates. This decline also affected other AI-related companies, causing a combined loss of around $100 billion in market value.
In addition to Nvidia, shares of Broadcom and Advanced Micro Devices were down about 2%, while Microsoft and Amazon dipped almost 1%. The options market had anticipated an 11% price swing for Nvidia’s shares, but the actual decline was less severe. Despite beating second-quarter revenue and adjusted earnings expectations, Nvidia’s softer forecasts overshadowed these positive results, as well as the announcement of a $50 billion share buyback. CEO of IG North America, JJ Kinahan, noted that expectations were extremely high, making it challenging for Nvidia to meet investor satisfaction.
The lackluster response to Nvidia’s earnings report could influence market sentiment as the historically volatile month of September approaches. The S&P 500 tends to decline by an average of 0.8% in September, the worst performance of any month since World War Two, according to CFRA data. Investors are keenly awaiting the U.S. employment report next week for insights into whether the labor market weakness that impacted stocks in early August has improved. Confidence in the AI technology sector and Nvidia’s growth has supported gains on Wall Street in recent months, but recent concerns over rich valuations and increased spending by major players have caused some uncertainty.
Nvidia’s forecasted revenue of $32.5 billion for the fiscal third quarter represents an 80% growth from the previous year, with an adjusted gross margin expectation of 75%. Analysts had predicted a slightly higher gross margin of 75.5%, according to data. Despite the decline in share price following the earnings report, Nvidia remains up approximately 150% in 2024, making it the biggest winner in Wall Street’s AI rally. The company’s stock was valued at 36 times earnings, lower than the five-year average of 41, while the S&P 500 is trading at 21 times expected earnings, compared to a five-year average of 18.
Investors’ reactions to Nvidia’s earnings report and forecast could set the tone for market sentiment in the upcoming weeks. The recent trend of tech companies being punished for failing to meet high valuation expectations has caused some uncertainty on Wall Street. Concerns over increased spending by major players in the AI race, such as Microsoft and Alphabet, have also contributed to wavering confidence in the sector. However, Nvidia’s strong growth in the AI chip market has been a significant driver of gains on Wall Street over the past year, despite recent fluctuations in investor sentiment.
