Nvidia's Subdued Forecast Dampens Enthusiasm In AI Chip Stocks

Nvidia shares trimmed some losses in premarket trading on Thursday, rebounding from an earlier decline as investors remained confident in the chip giant's growth prospects, despite a forecast that fell short of lofty expectations, reported by Noel Randewich, Saqib Iqbal Ahmed, and Deborah Mary Sophia for Reuters.

The stock's strength has been a cornerstone of the market's rally both this year and last year, leading to what some say are ultimately insurmountable expectations.

The company's shares were down 3.4% after it forecasted third-quarter gross margins that could miss market estimates and revenue that was largely in line, triggering a selloff across chip stocks, including Broadcom, Advanced Micro Devices, and Arm.

Nvidia has consistently exceeded Wall Street's estimates for several quarters, driven by surging demand for AI chips, leading investors to rely on the company's tendency for routine blowout forecasts.

The stock's strength has been a cornerstone of the market's rally both this year and last year, leading to what some say are ultimately insurmountable expectations.

"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, CEO of IG North America and president of online broker Tastytrade.

The forecast came after strong second-quarter earnings that exceeded Wall Street expectations, and the AI bellwether also announced a new $50 billion share buyback.