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A scorching rally in Nvidia’s shares this year came to a halt on Tuesday as investors worried if the high-flying chip designer’s quarterly results would justify its towering valuation.
The stock fell 5.3 per cent to $687.91. If losses hold, it could be the biggest percentage drop in more than eight months.
Nvidia has been at the heart of the frenzy around artificial intelligence (AI). A more than 40 per cent surge in its stock this year helped it replace Alphabet as the third most valuable U.S. company, behind Microsoft and Apple.
The market capitalization of Nvidia was $1.79 trillion on Friday.
“The market is maybe a little bit hesitant whether they (Nvidia) can deliver a strong enough guidance to reinvigorate the market even higher,” said Frank Lee, head of technology research at HSBC.
The company will report quarterly results on Feb. 21. Analysts expect earnings of $4.56 a share and revenue to rise to $20.378 billion from $6.05 billion a year earlier, according to LSEG estimates.
Still, Nvidia’s eye-popping run this year that pushed it to new peaks and powered gains in U.S. stock markets could make the stock vulnerable if earnings are less than stunning.
“You can’t come out and simply meet or slightly beat for the stock to go higher, Nvidia’s going to need to blow it away,” said Dennis Dick, a trader at Triple D Trading.
Nvidia options are pricing a swing of about 11 per cent in either direction following results, according to data from options analytics service ORATS.
Other AI-focused stocks such as Super Micro Computer fell 11.6 per cent and Arm Holdings dropped 7.3 per cent.
Advanced Micro Devices was down nearly 6 per cent, having recorded double-digit gains on a year-to-date basis.
Nvidia’s shares are trading at 32 times its forward earnings estimates compared with the industry median of 25.4.
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