Global chip stocks experienced notable volatility on Thursday following Nvidia’s fiscal second-quarter report, which, despite exceeding analyst forecasts, led to a broader sell-off in semiconductor equities. The market reaction underscores the industry’s sensitivity to growth projections and investor sentiment, especially in light of Nvidia’s recent performance.

Nvidia’s Earnings Report: A Disappointment in Growth

Nvidia, a leading player in the semiconductor industry, reported second-quarter results that outpaced analysts’ revenue and earnings per share estimates. However, the company’s stock fell sharply, reflecting investor concerns that Nvidia might not sustain its previous explosive growth rates. The earnings report showed a slight decline in Nvidia’s gross margin, dropping to 75.1% from 78.4% in the previous period. The company’s forecast of a “mid-70% range” gross margin fell short of analysts’ expectations of 76.4%, according to StreetAccount.

Luke Rahbari, CEO of Equity Armor Investments, suggested that while Nvidia’s results were strong, the market’s reaction might be due to fears that the company’s rapid growth could be slowing. “For so many quarters, Nvidia had blown out expectations of analysts… People [are] maybe thinking the runaway train is slowing down a little bit,” Rahbari said. Despite the recent decline, he remains optimistic about Nvidia’s position, citing its dominant industry status.

Asian Semiconductor Firms Hit Hard

The ripple effect of Nvidia’s report was felt acutely across Asia’s semiconductor sector. South Korean chipmakers SK Hynix and Samsung Electronics, both of which supply components to Nvidia, saw significant losses. SK Hynix, a major manufacturer of high-bandwidth memory (HBM) chips used in AI applications, saw its stock plummet 5.4% during Asian trading hours. Samsung Electronics, a key player in the semiconductor space and the highest weighted stock on South Korea’s Kospi index, experienced a drop of over 3%. Though the full extent of Samsung’s supplier relationship with Nvidia remains unclear, it is known that Samsung is involved in manufacturing HBM chips for some of Nvidia’s products.

Other Nvidia suppliers, including Taiwan Semiconductor Manufacturing Company (TSMC) and Hon Hai Precision Industry (Foxconn), also faced declines of roughly 2% and 1%, respectively. Japanese semiconductor firm Tokyo Electron fell by 2%, adding to the sector-wide downturn.

European and U.S. Semiconductor Stocks: Divergent Reactions

In Europe, the reaction was more mixed. Dutch semiconductor firms showed some resilience with BE Semiconductor down around 0.4%, while ASML, a major semiconductor equipment maker, saw its shares increase by 1%. STMicroelectronics and ASMI, other Dutch chipmakers, rose by 2% and 1%, respectively. German firm Infineon also saw a 1% gain.

Conversely, in the U.S., Nvidia’s rival AMD, which has also benefited from the AI boom, fell nearly 4% in extended-hours trading. Other major chip players, including SoftBank-backed Arm, Broadcom, and Qualcomm, also experienced declines.

One of the day’s most dramatic movements came from Super Micro, which sank 7% in after-hours trading, compounding a 19% drop from Wednesday’s session. This decline followed a report from Hindenburg Research, which alleged fresh evidence of accounting manipulation at the company. Super Micro, which has delayed its annual report, attributed the delay to additional time needed to assess its internal controls over financial reporting as of June 30, 2024.

Broader Implications and Market Sentiment

The overall market response to Nvidia’s earnings report illustrates the broader impact of growth expectations on semiconductor stocks. While Nvidia’s results were strong, the perceived slowdown in growth led to significant sell-offs, particularly among companies directly connected to Nvidia’s supply chain.

Mark Luschini, chief investment strategist at Janney Montgomery Scott, viewed the decline in Nvidia’s shares as a “rounding error” given the stock’s substantial rise this year. “The company is growing fast, but the pace of growth is slowing down for 4 quarters now. For a company that’s trading on a 40-50 times forward earnings, that’s a high demand hurdle to overcome vs expectations,” he noted.

As the semiconductor sector continues to navigate through these fluctuations, the focus will likely remain on how companies manage growth expectations and adapt to market dynamics. The reactions to Nvidia’s report underscore the delicate balance between impressive performance and the ever-present need to meet or exceed investor expectations in a rapidly evolving industry.

(Adapted from CNBC.com)