After a remarkable surge in Nvidia’s (NASDAQ:NVDA) stock price this year, the momentum came to a pause on Tuesday as investors questioned whether the chip giant’s upcoming quarterly results would match its lofty valuation. Shares dropped 5.3% to $687.91, potentially marking the largest percentage decline in over eight months.
Nvidia has been a focal point in the artificial intelligence (AI) boom, with its stock soaring over 40% this year, propelling it past Alphabet to become the third most valuable U.S. company, trailing only Microsoft and Apple. As of Friday, Nvidia’s market capitalization stood at $1.79 trillion.
Investors are now cautious, unsure if Nvidia can provide strong enough guidance to justify further market excitement. Frank Lee, head of technology research at HSBC, commented, “The market is maybe a little bit hesitant whether they (Nvidia) can deliver a strong enough guidance to reinvigorate the market even higher.”
The company is set to report its quarterly results on Feb. 21, with analysts anticipating earnings of $4.56 per share and revenue to increase to $20.378 billion from $6.05 billion a year earlier, according to LSEG estimates.
Despite Nvidia’s impressive performance this year, driving record highs and contributing to broader gains in U.S. stock markets, the stock could be vulnerable if earnings fail to impress. Dennis Dick, a trader at Triple D Trading, noted, “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.”
Options data suggest a potential 11% swing in either direction following the earnings report, according to ORATS.
In tandem with Nvidia’s decline, other AI-focused stocks faced downward pressure, with Super Micro Computer falling 11.6% and Arm Holdings dropping 7.3%. Advanced Micro Devices (AMD) also saw a decline of nearly 6%, despite earlier double-digit gains this year. Nvidia’s current stock price is trading at 32 times its forward earnings estimates, compared with the industry median of 25.4.
Featured Image: Megapixl
Author Stephanie Bédard-Châteauneuf