Nvidia's Subdued Forecast Dampens Enthusiasm In AI Chip Stocks

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

The stock's strength has been a key factor in the market's rally this year and last, creating expectations that some say are ultimately insurmountable.

The company's shares were down 3.4% after it forecast 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 key factor in the market's rally this year and last, creating expectations that some say are ultimately insurmountable.

"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 followed strong second-quarter earnings that exceeded Wall Street expectations, and the AI bellwether announced a new $50 billion share buyback as well.