Nvidia's forecast dampens AI enthusiasm in chip stocks

-Nvidia dragged AI-linked chip stocks lower on Thursday after its forecasts disappointed investors who had been hoping they would fuel fresh gains in the companies that have been some of Wall Street's best performers this year.

TSMC's shares on the Taiwan bourse also closed lower as Asian tech stocks tracked weakness in Nvidia, with South Korea's KOSPI index falling to a two-week low. Nvidia's soft forecasts overshadowed a beat on second-quarter revenue and adjusted earnings as well as the unveiling of a $50 billion share buyback.

Optimism about AI technology, in part due to Nvidia's explosive growth, has fueled gains on Wall Street over the past year. Nvidia forecast revenue of $32.5 billion, plus or minus 2%, for its fiscal third quarter, compared with analysts' average estimate of $31.8 billion, according to LSEG data. That revenue forecast implies 80% growth from the year-ago quarter.

Nvidia's stock was valued at 36 times earnings ahead of its quarterly report, inexpensive compared to its average of 41 over the past five years. The S&P 500 is trading at 21 times expected earnings, compared to a five-year average of 18.

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